Capital Lease conversion for noninsurance SCA

[FranH-EH]

1. We account for our investment in a noninsurance SCA Under SSAP97 per paragraph 8bii. We have referred to Paragraph which 9 states that the statutory basis of accounting shall be based on audited U.S. GAAP equity adjusted for items in 9a-9d. However, it is unclear if the SCA has a capital lease under GAAP, should it be converted to an Operating lease for statutory reporting or should the Capitalized Assets be non-admitted?

2. Also, how would we convert a Capital Lease to an Operating Lease? Would it be as simple as Debiting the Capitalized Leased Liability and Credit the Capitalized Leased Asset?

[Russ]

Paragraph 9b states "Expense costs that are capitalized in accordance with GAAP but are expensed pursuant to statutory accounting as promulgated by the NAIC in the Accounting Practices and Procedures Manual (e.g., deferred policy acquisition costs, preoperating, development and research costs, etc.)". Although not specifically identified, we believe that a capital lease recorded under GAAP would need to be converted to a operating lease under Statutory accounting principles.

As you indicate, elimination of the capital asset and liability makes sense with any difference between amounts being a retained earning adjustment.

Revision comments: Further discussion of the facts and circumstances of a proposed sale/leaseback transaction indicate that there would be no capitalized expenses, and therefore, no adjustment under Paragraph 9b of SSAP 97. I also agree that no adjustment is required for SSAP 22, Leases under Paragraph 9a of SSAP 97.

[FranH-EH]

Good morning Russ my Assistant Controller would like to know if you have a contact phone number that he may reach out to you?

[Debbie]

Phone number for Russ is 336-728-2303. He will be traveling today and should be in the office tomorrow.

[FranH-EH]

Good afternoon Russ my Controller would like to have a quick follow-up call regarding a thread we posted back in 2016 regarding converting a CapitalLease to an Operating Lease. Can you please provide us day and time when you may be available to setup a conference call.