In response to the COVID-19 pandemic, the National Association of Insurance Commissioners' Statutory Accounting Principles Working Group is considering relief for insurers for an interim period.

In response to the COVID-19 pandemic, US state insurance regulators have undertaken various measures designed to benefit policyholders, such as by requiring the extension of grace periods for overdue premium payments and imposing moratoriums on cancellations for non-payment of premiums. However, as a result, insurers face potentially unfavorable accounting treatments under existing statutory accounting requirements. At the same time, the investment portfolios of insurers are under pressure as a result of the economic disruption due to and financial consequences of the COVID-19 pandemic, including due to potentially nonperforming mortgage loans and other loan obligations which underlie their investments. Accordingly, the Statutory Accounting Principles (E) Working Group (the "Working Group") of the National Association of Insurance Commissioners (the "NAIC") has exposed draft interpretations of the NAIC's statutory accounting rules which would give insurers some relief on certain accounting requirements for an interim period. A brief summary of some of the relevant proposals follows below.

INT 20-02T would modify Statement of Statutory Accounting Principles ("SSAP") No. 6 and SSAP No. 65 by providing a one-time extension of the ninety-day rule, which otherwise requires that uncollected premium balances which have been outstanding for more than ninety days be accounted for as nonadmitted assets. Under the proposal for policies (including high deductible policies) that were in effect and current prior to March 13, 2020, insurers may wait until September 28, 2020 before having to categorize overdue premiums which are receivable from policyholders or agents as nonadmitted. Under the current proposal, INT 20-02T would automatically expire on September 29, 2020.

INT 20-03T would provide that, when determining whether to report a modification of mortgage loan terms in response to COVID-19 as a troubled debt restructuring pursuant to SSAP No. 36, insurers should follow the provisions detailed in the Statement on Prudential Regulator Guidance Concerning Troubled Debt Restructurings dated March 22, 2020 from the Financial Accounting Standards Board. In essence, INT 20-03T would give insurers more time before having to classify the loan as troubled debt restructuring. As drafted INT20-03T would remain effective for as long as it is deemed applicable – i.e., there is no automatic expiration date.

INT 20-04T would modify SSAP Nos. 30, 37, 43R, and 48 by providing a one-time exemption for assessing other than temporary impairment for (1) mortgage loans with payments (either principal or interest) that have short-term deferrals or modifications in response to COVID-19, (2) fair value declines for SEC registered funds that have underlying mortgage loans that have been deferred or modified in response to COVID-19, and (3) fair value declines in investments that have underlying mortgage loans deferred or modified in response to COVID-19. As currently proposed, INT 20-04T would automatically expire on September 29, 2020.

The period for comments on the draft interpretations ended on April 2, 2020. The Working Group is expected to finalize the interpretations as quickly as possible (taking into account the comments it has received) in recognition of the need for accounting forbearance to protect insurers' balance sheets as the COVID-19 crisis continues to unfold. It is likely that the activity of the Working Group will be followed by further action by the NAIC as well as action by state insurance regulators in the form of various permitted practices as we discussed here.

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