Accounting Standard Updates


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Hot Take:

Hot Take

Regarding the INT 20-08 Reassessment, which was originally adopted by SAPWG in its June 15, 2020 conference call, the NAIC Accounting Practices & Procedures Task Force (APPTF) was requested by the NAIC Financial Condition (E) Committee to review follow-up requests from certain interested parties within the insurance industry with respect to the recent SAPWG final issuance of INT 20-08 – Premium Refunds, Rate Reductions and Policyholder Dividends. Specifically, a limited-time exception has been granted for a narrow reporting group to account for the refunds as underwriting expense if certain criteria is met.

In this article, we only address the limited-time component exception as the INT 20-08 remained intact from its original decisions.

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Highlights – REGARDING INT 20-08 Reassessment –

Originally adopted by SAPWG in its June 15, 2020 conference call, the INT has been reevaluated by the Accounting Practices and Procedures Task Force (APPTF) to further assess accounting and reporting options for COVID-19-related refunds to policyholders.

Background – INT 20-08, COVID-19 Premium Refunds, Limited-Time Exception, Rate Reductions and Policyholder Dividends

On June 15, 2020, the SAPWG revisited the original INT to finalize decisions on 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. SAPWG reached a majority consensus to treat refunds as direct reductions to premium. Certain interested parties with specific methodologies and desires to treat the refunds as an underwriting expense were not granted such exception. Subsequently, the NAIC E-Committee sent the original SAPWG decision to the APPTF with the direction to find a workable option that would satisfy all interested parties.

So, what’s the rub?

Due to the diversity of accounting that various jurisdictions approved for the COVID-19 premium refunds, on July 22, the APPTF approved a limited-time exception to the originally approved guidance allowing underwriting expense reporting under a narrow profile. The limited-time exception applies to property and casualty entities where a specific policy endorsement or manual rate filing was made prior to June 15, 2020. Under these circumstances, reporting entities disclosed to their regulatory oversight their intention to report the refunds as expenses. The APPTF decision specifically notes this limited-time exception is not to be viewed as an authoritative guidance for other situations that may mimic this issue.  Further, if a specific jurisdiction rejects the expense reporting methodology, the limited-time exception is void.

Disclosure requirements under this limited-time exception will require reporting in the regulatory statements as if this were a permitted practice. Permitted practice guidance noted in SSAP No. 1 – Accounting Policies Risks & Uncertainties and Other Disclosures is to be followed with detailed reporting in Note 1 of the statutory annual statement. Paragraph 25 of the revised INT provides an extensive analysis of the expected disclosures to be placed in Note 1 of the annual statement. One key item is the requirement to provide a with-and-without type presentation on the key ratios reported in the Five-Year Historical Analysis.

The revised INT reiterates that this promulgation does not alter or impact any jurisdictional premium taxes and leaves all premium tax decisions to the individual state authorities.

INT 20-08 was amended on July 22, 2020, by the APPTF to add the limited-time exception and related disclosures. It is effective for the 2nd quarter 2020 regulatory reporting and will automatically terminate on January 1, 2021.