SSAP No. 98

Nov 18th, 08

SSAP No. 98 – Treatment of Cash Flows When Quantifying Changes in Valuation and Impairments, An Amendment to SSAP No. 43 – Loan Backed and Structured Securities

SSAP No. 98 relates to the valuation of impaired loan-backed securities.  SSAP No. 43, the previous guidance, required an entity to recognize an “other than temporary impairment” on a loan-backed security if a revaluation based on new currently estimated cash flows resulted in a negative yield (i.e., undiscounted estimated future cash flows were less than current book value).  If a negative yield existed, the loan-backed security would be written down to the undiscounted estimated future cash flows. 

SSAP No. 98 states that if it is determined that the decline in fair value of a loan-backed security is other than temporary, then the cost basis of the security should be written down to fair value.  It also states that an interest-related decline in value should be considered other than temporary only when a reporting entity has the intent to sell the investment, at the reporting date, before recovery of the cost of the investment.

During a conference call on November 5, 2008, the Statutory Accounting Principles Working Group adopted SSAP No. 98.  It is effective for quarterly and annual reporting periods beginning on or after January 1, 2009, with early adoption permitted and encouraged.  A change resulting from the adoption of the statement should be accounted for prospectively.  No cumulative effect adjustments or application of the new guidance to prior events or periods are required, similar to a change in accounting estimate.