NAIC Announces Three Accounting Changes Related To COVID-19

The NAIC’s Statutory Accounting Principles (E) Working Group adopted three interpretations related to COVID-19 last week.

The statutory accounting exceptions allows insurance reporting entities to respond to policyholder needs for premium payment delays and address mortgage loan modification or forbearance requests, while mitigating insurance reporting entity concerns on the impact to statutory financial statements.

The interpretations provide additional time for insurance reporting entities to collect premium receivables before reporting the receivable as non-admitted in the statutory financial statements.

In addition, the interpretations provide allowances to insurance reporting entities in classifying a mortgage loan or bank loan, which was modified in response to COVID-19, as a troubled debt restructuring.

Finally, the provisions allow deferred insurance reporting entity impairment assessments for bank loans, mortgage loans and investments, which predominantly hold mortgage loans due to forbearance or modifications, in response to COVID-19.

The interpretations are designed to provide limited-time exceptions, but the Working Group has committed to continue to review the environment in response to COVID-19 and will consider whether extensions or additional interpretations are necessary.

Here is a summary of the three changes:

INT 20-02: Extension of Ninety-Day Rule for the Impact of COVID-19. This interpretation provides an optional extension of the 90-day rule before non-admitting premium receivables and receivables from non-government uninsured plans.

INT 20-03: Troubled Debt Restructuring Due to COVID-19. This interpretation clarifies that a modification of mortgage loan or bank loan terms in response to COVID-19 shall follow the provisions detailed in the April 7 “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” and the provisions of the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act in determining whether the modification shall be reported as a troubled debt restructuring.

INT 20-04: Mortgage Loan Impairment Assessment Due to COVID-19. This interpretation provides limited time exceptions to defer assessments of impairment for bank loans, mortgage loans and investments, which predominantly hold underlying mortgage loans, that are affected by forbearance or modifications in response to COVID-19.