The National Association of Insurance Commissioners’ (NAIC) Statutory Accounting Principles Working  (E) Group (Working Group) has  issued accounting guidelines that insurers can use to support policyholders and borrowers negatively impacted by COVID-19.  The Working Group is responsible for developing and adopting substantive, non-substantive and interpretation revisions to the NAIC Accounting Practices and Procedures Manual (AP&P Manual).  The AP&P Manual provides the basis for insurers to prepare financial statements for financial regulation purposes.  These statements are used by state regulators to measure the financial health of a regulated insurer.   The Working Group has adopted three interpretations that allow for temporary exceptions from certain problematic reporting rules. The new NAIC Statement Statutory Accounting Principles (SSAPs) implicated are:

  • Interpretation 20-02T: This interpretation affects accounting for delays in collecting insurance premiums in U.S. jurisdictions that are disrupted by the COVID-19 pandemic.
  • Interpretation 20-03T: Many insurers have large investments in loans, and in pools of loans.  This interpretation permits insurers  to extend grace periods to borrowers affected by COVID-19 disruption to allow them extra time to make payments without classifying the changes in a loan’s terms as troubled debt restructuring.
  • Interpretation 20-04T: Many 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 applies to insurers that give borrowers affected by COVID-19 disruption extra time to make their mortgage payments.

The interpretations apply for flexibility that insurers provide, due to COVID-19-related disruption, from Jan. 1, 2020, through June 30, 2020.  Under the interpretations, insurers can provide temporary flexibility without recording an impairment.  An example would include  a 60 or 90-day premium grace period, which many states have recently mandated by executive order, Emergency Regulation, or through bulletins. See, https://www.bressler.com/news-ny-state-initiatives-would-shift-some-of-the-burden-of-pandemic-losses-to-the-insurance-industry and https://www.bressler.com/news-covid19-executive-order-continues-to-seek-forbearance-from-the-insurance-industry.   An insurer will still  be required to record an impairment if it sells a loan or loan-backed security affected by the COVID-19 disruption, or if policyholders fail to pay their premiums after the extended grace periods expire.

The working group notes in the draft of the interpretation for COVID-19 premium grace periods that it provided a similar premium grace period interpretation, but for just 60 days, for major hurricanes, such as Hurricane Katrina.  “This recommendation is for a longer period than the extensions that have been granted in the past as COVID-19 is considered a nationally significant event due to the expected overall impact to the U.S. economy,” according to the comment in the draft.  https://www.propertycasualty360.com/2020/04/23/naic-working-group-approves-covid-19-flexibility-accounting-rules-414-177311/.  Regulatory flexibility in this regard demonstrates recognition of the potentially devastating impact of the coronavirus on the insurance industry.   


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