![]() ![]() Life insurers, in particular, have also been increasing their investments in mortgages over the past several years and passed the half-trillion dollar mark under statutory accounting for the first time as of year-end 2018. Under stat, however, virtually all bond investments are held at amortized cost, which means that directly transposing CECL would result in inconsistencies relative to GAAP. ![]() Notably, they point out that CECL applies to assets held at amortized cost under GAAP, which means that bonds held as available for sale, a major chunk of insurers' investment portfolios, are not heavily impacted by the new rules. ![]() However, Jonathan Glowacki, a principal and consulting actuary for Milliman, said the implementation of some form of expected credit loss standard within statutory accounting is likely.Ĭomment letters on the NAIC's discussion draft show that insurance companies are opposing several of the recommendations set out by staff on how to adopt an expected credit loss model. There has been no traction to proposed revisions as well as no particular set of, 'this is how we're going to move forward,' at this point in time." "So far we've just done discussion papers, different concepts that could be considered. "We're kind of on a wait and see what FASB does," Gann said. The Financial Accounting Standards Board, which sets the reporting standards for companies following GAAP, has said it intends to press ahead on the current schedule. 1, 2020, although there are various efforts underway to delay and/or water down the measures, including bills introduced in both houses of Congress. The implementation of CECL is due to begin Jan. The NAIC has thus far released a preliminary discussion draft outlining key issues relating to CECL and statutory accounting, as well as NAIC staff recommendations. We have conservatism in our statement of concept, so that would clearly not be more conservative than U.S. However, she added: "If we don't go toward something for expected credit losses, we would be the only standard setter still on the incurred loss model. There has been no proposal as yet to incorporate expected credit loss into statutory accounting, said Julie Gann, a senior manager with the NAIC who works closely with the Statutory Accounting Principles Working Group. As such, it has been considering adopting some form of expected credit loss criteria for quite some time.Īlthough it has been difficult to parse out exactly how CECL will affect insurance companies, it will be a drastic shift from the incurred loss model currently in use, which limits companies from reserving for loan losses until they are probable. However, the NAIC strives to create a conservative accounting framework, including examining how GAAP standards compare to stat. The NAIC requires insurance companies to file a separate set of statements under its Statutory Accounting Principles, or stat, which does not yet include an expected credit loss standard. ![]() That provision, dubbed CECL, will significantly change the way institutions reserve for credit losses, by requiring them to estimate lifetime losses on a number of assets at origination. The National Association of Insurance Commissioners must decide whether to change its accounting rules or face the possibility of being less stringent than its regulatory counterparts.Īs of now, the new current expected credit loss model, which goes into effect for SEC filers beginning in 2020, will only be applied to insurers' statements under Generally Accepted Accounting Principles. To read the first article, please click here. Editor's note: This is the second of two articles looking at the impact of the new CECL standard on U.S. ![]()
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