During the second quarter of 2020, over 140 insurance carriers participated in the Paycheck Protection Program (“PPP”) by borrowing an aggregate amount estimated to be $110 to $250 million. The carriers consisted of property and casualty companies, life and health companies and fraternal benefit societies where individual companies were granted loan approvals estimated in the neighborhood of $150,000 to $10 million. A vital benefit of the PPP loans includes the continued support of over 10,000 industry jobs by providing funds to support employee salaries. In addition to payroll, the program intends to help employers fund other expenses including employee benefits, rent, utility costs, and mortgage interest. Together, these are key components of the Coronavirus Aid, Relief, and Economic Security Act (CARES).
The Small Business Administration (SBA) provided disclosure information for insurance carriers, excluding non-insurance subsidiaries, affiliated managing general agencies, and holding companies. All loans under $150,000 were excluded from this analysis. For context on carriers’ overall participation, the insurance carriers’ total borrowings make up only a small percentage of the approximate $521 billion funded through June of 2020.
Instead of providing specific loan amounts for a carrier, the SBA decided to categorize the carriers into five ranges based on the amount of borrowings obtained. The borrowing range and percentage of carriers that fall into each range are as follows; $150,000-$350,000 (35.9%); $350,000-$1 million (38.7%); $1 million-$2 million (11.3%); $2 million-$5 million (7.7%); and $5million-$10million (6.3%). The carriers included in this analysis had average net admitted assets of approximately $191 million, while five carriers had net admitted assets in excess of $1 billion. Nine of the carriers included in the analysis borrowed between $5 million and $10 million.
The PPP loans bear interest at 1% and are subject to forgiveness if the borrower meets various criteria relating to employee retention and salary levels.The current sentiment among many of these carriers is they expect the majority of their loan to qualify for forgiveness.
Statement of Statutory Accounting Principles No. 15 currently requires that extinguished debt, other than obligations to stockholders, be recognized as a realized capital gain. It is possible that further guidance could be provided in the next few months regarding income inclusion of the amounts forgiven. For more information about the recognition of PPP loan proceeds, see our SSAP Chat post here and video explanation here.