Background – INT 20-08T, COVID-19 Premium Refunds, Rate Reductions and Policyholder Dividends
SAPWG exposed the original INT to discuss how to handle the accounting for the unique situation where COVID-19 related premium refunds, rate reductions, and policyholder dividends occurred as a result of voluntary or regulatory-directed refunds. At first glance, a rather straightforward SAPWG determination became a bruhaha of differing perspectives from the Interested Party (IP) industry group. It garnered such varying IP perspectives that SAPWG has extended the INT for further discussions and analysis and will be addressing it at the June 15, 2020, SAPWG conference call. Stay tuned on this one, more to come.
So, what’s the rub?
SSAPWG initially identified five primary issues for which guidance was provided:
- Issue 1: How to account for refunds not required under the policy terms;
- Issue 2: How to account for refunds required under the policy terms;
- Issue 3: How to account for rate reductions on in-force and renewal business;
- Issue 4: How to account for policyholder dividends;
- Issue 5: Where to disclose refunds, rate reductions, and policyholder dividends related to COVID-19 decreases in activity.
The NAIC staff’s original direction attempted to follow as much as possible the accounting guidance currently in place for handling this unusual chain of refund events. For the most part, the reduction of premium was the accounting direction to be used. Other accounting practices would be subject to the regulatory permitted or prescribed practice process.
Interested parties had much to say in this arena, with discussion ranging from premium reduction to recognition of refunds in the expense category. Additionally, required disclosure of COVID-19 related refunds in the annual statement became a talking point due to the nuances of how to accurately accumulate relevant data (e.g., rate reductions, direct premium refunds, etc.). Having heard the many concerns of the IP group, SAPWG prudently determined to have more background discussions and research occur before issuing further promulgated guidance. This item will receive an open discussion in the upcoming June 15 SAPWG conference call. The public comment period ends on June 5.
Other SAPWG Conference Call Decisions:
Two additional INT promulgations were adopted during the May 20 conference call. You can click below to read more about the decisions.