The Statutory Accounting Principles Working Group (“SAPWG”) held a conference call on June 15, 2020, to review and discuss one previously exposed interpretation and one pending item for exposure. The adoption is summarized in this post to keep our readers abreast of what is changing as a result of the conference call.
Adopted Items
One item was adopted, with minor amendments, following a lengthy discussion with comments and feedback from the SAPWG, regulators, and other interested parties. This interpretation was adopted effective immediately and will be automatically nullified on January 1, 2021.
- INT #20-08: COVID-19 Premium Refunds, Rate Reductions and Policyholder Dividends – The intention of this interpretation is to provide guidance on how to account for premium refunds, premium rate reductions and policyholder dividends issued in response to COVID-19.
- When accounting for refunds not required under the policy terms (either voluntary or jurisdiction-directed), the company should report the amount as a reduction of premium. Reporting the refund as an expense, or any other method besides a decrease to premium, would be considered a permitted or prescribed practice and should be disclosed as required by SSAP No. 1 – Accounting Policies, Risks & Uncertainties, and Other Disclosures.
- The liability for voluntary health premium refunds attributable to COVID-19 and which are not required under the policy terms should be recognized in aggregate write-ins for other liabilities.
- Reporting entities that provide refunds in accordance with insurance policy terms that require adjustment to premium (based on either the level of exposure to insurance risk or the level of losses) should follow the guidance found in SSAP No. 53 – Property and Casualty Contracts – Premiums, SSAP No. 54R – Individual and Group Accident and Health Contracts or SSAP No. 66 – Retrospectively Rated Contracts, as applicable.
- Rate reductions on in-force business should be recognized as immediate adjustments to premium. Rate reductions on future renewals should be reflected in the premium rate charged on renewal.
- Reporting entities that provide policyholder dividends in response to COVID-19 decreases in activity should follow the existing guidance for policyholder dividends as directed in SSAP No. 65 – Property and Casualty Contracts.
- When accounting for refunds not required under the policy terms (either voluntary or jurisdiction-directed), the company should report the amount as a reduction of premium. Reporting the refund as an expense, or any other method besides a decrease to premium, would be considered a permitted or prescribed practice and should be disclosed as required by SSAP No. 1 – Accounting Policies, Risks & Uncertainties, and Other Disclosures.
Lastly, the interpretation indicates that reporting entities should continue to comply with all statutory accounting disclosure requirements, but also requires that all premium refunds, rate reductions and/or policyholder dividends provided because of decreased activity due to COVID-19 should be aggregated and reported in Note 21A – Unusual or Infrequent Items.
Exposed Items
- Ref #2020-16EP: Editorial and Maintenance Update – The Working Group exposed nonsubstantive editorial revisions to SSAP No. 2R – Cash, Cash Equivalents, Drafts and Short-Term Investments for a shortened comment period ending July 15, 2020 to allow for adoption at the Summer National Meeting.
Updates from prior meetings are available in Gain’s growing library of resources.
As always, Gain Compliance integrates the latest changes into the NAIC guidelines to streamline the reporting process. If there are any further questions or comments, please do not hesitate to reach out.
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