State insurance regulators are drafting rules that could shape insurers’ accounting for efforts to help people hurt by COVID-19-related turmoil.
The Statutory Accounting Principles Working Group, part of the National Association of Insurance Commissioners (NAIC), is developing guidance for three different types of mercy.
- The draft interpretations are available, under the Exposure Drafts tab, here.
- An article about what Daniel Rabinowitz, an insurance finance law expert, is seeing is available here.
The working group is asking for public comments on these three draft interpretations of existing NAIC Statements of Statutory Accounting Principles, or SSAPs:
- Interpretation 20-02T: This interpretation could affect accounting for delays in collecting insurance premiums in U.S. jurisdictions that are disrupted by the COVID-19 pandemic.
- Interpretation 20-03T: Insurers have large investments in loans, and in pools of loans. This interpretation could let insurers give borrowers affected by COVID-19 disruption extra time to make payments without classifying the changes in a loan’s terms as troubled debt restructuring.
- Interpretation 20-04T: Insurers have large investments in mortgage loans, securities backed by mortgage loans, affiliates that invest in mortgages, and shares of stock issued by stock companies that make mortgage loans. This interpretation could affect insurers that give borrowers affected by COVID-19 disruption extra time to make their mortgage payments.
Accountants describe “admitting that an arrangement has gone bad” as “recording an impairment.”
Interpretation 20-02T would let an insurer provide premium payment flexibility from Jan. 1, 2020, through June 30, 2020, without recording an impairment, for customers who had been meeting their premium payment obligations before COVID-19 came along.
The premium payment draft would help insurers offer premium payment grace periods.
Interpretation 20-03T and Interpretation 20-04T would let an insurer provide flexibility from Jan. 1 through June 30, for borrowers who previously were current on their loan payments, without recording an impairment.
An insurer would still have to record an impairment if it believed that a borrower was unlikely to be able to repay the loan.
An insurer would also have to record an impairment if the flexibility involved a security or a stake in a lender affected by COVID-19-related loan modifications, and the insurer sold the security or lender ownership stake.
In the draft mortgage interpretation, the working group describes the interpretation as applying to ”an interest rate modification, a repayment plan, and any other similar arrangement that defers or delays the payment of principal or interest.”
The debt restructuring and mortgage loan interpretations would expire Sept. 29.
The COVID-19-related flexibility, and the impairment accounting interpretations, would affect assets life insurers use to meet their obligations to holders of products such as life insurance, disability insurance, long-term care insurance, and annuities.
Comments on the drafts are due Thursday.
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