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COVID-19 US: NAIC Considers Additional Accounting Interpretations in Response to COVID-19 Pandemic

  • Legal Development 14 May 2020 14 May 2020
  • Americas

  • Coronavirus

The National Association of Insurance Commissioners (the “NAIC”) is considering additional interpretations of statutory accounting rules in response to the COVID-19 pandemic.

COVID-19 US: NAIC Considers Additional Accounting Interpretations in Response to COVID-19 Pandemic

In a continuing effort to adjust accounting requirements in response to developments arising out of the COVID-19 pandemic, the NAIC’s Statutory Accounting Principles (E) Working Group (the “Working Group”) has exposed new draft interpretations of the NAIC’s statutory accounting rules as summarized below.

INT 2020-14 would clarify that under Statement of Statutory Accounting Principles (“SSAP”) No. 26R assessments of other-than-temporary impairments occurring after a troubled debt restructuring should be undertaken on the current contractual terms of the debt instrument (rather than the original contract terms). 

INT 20-08T proposes guidance in relation to SSAPs 5, 24, 53, 65, and 66 in relation to, inter alia, the accounting of premium refunds and premium reductions provided in response to COVID-19.  INT 20-08T provides that: (1) refunds made outside of policy terms (i.e., on a voluntary basis or as required by regulation) should generally be accounted for as immediate adjustments to premium or as liabilities under SSAP No. 5R; and (2) premium reductions outside of policy terms on in-force business should be recognized as immediate adjustments to premium whereas reductions on future renewals should be reflected in the premium charged on renewal.

INT 20-07T proposes “practical expedients” in applying the concession guidance in SSAP No. 36, paragraph 10 – i.e., if a loan modification results in a change that reflects a ten percent (10%) or less shortfall in the contractual amount due or a delay in payment for six (6) months or less such modifications should be considered insignificant and not a concession for purposes of SSAP No. 36.  The Working Group has recently exposed a related interpretation of SSAP No. 36 regarding troubled debt restructurings about which we blogged here.

INT 20-05T considers exceptions to existing statutory accounting guidance with regards to the 90-day rule for various receivables.  For example, INT 20-05T permits insurers to delay the evaluation of collectability on mortgage loans (or investments with underlying mortgage loans) which have been modified in connection with COVID-19 but which were performing as of Dec. 31, 2019 until required for the 3rd quarter 2020 financial statement (subject to certain exceptions – e.g., if the borrower files for bankruptcy).

The period for comments on the foregoing draft interpretations ends on May 20, 2020.


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