FASB to Address CECL Reinsurance Question

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FASB is slowly addressing the many implementation issues arising from its new credit impairment model, known as CECL. While most of the focus to date has been on banks, other financial service firms and nonfinancial companies also will be affected by the coming changes. In November 2018, FASB issued a massive exposure draft addressing 15 technical issues on the credit impairment model, which included one urgent issue for insurance companies.

Are reinsurance recoverables measured on a net present value basis in accordance with Topic 944, Financial Services—Insurance, covered by the CECL guidance?

As currently written, the scope could be interpreted to exclude those recoverables because they are not measured at amortized cost basis. The proposed amendment would clarify FASB’s intent to include all reinsurance recoverables within the scope of Topic 944 within the scope of Subtopic 326-20, regardless of the measurement basis of those recoverables. Comments were due by January 18, 2019, and several accounting firms and one insurance company indicated agreement with the changes to clarify CECL’s scope.

FASB has scheduled a March meeting to discuss this topic, as well as multiple other outstanding CECL questions. A final standard could be issued as early as the second quarter of 2019; however, some of the noninsurance issues and concerns may delay release. BKD will continue to monitor developments on this standard.

CECL Timeline

If you would like assistance complying with the CECL standard, contact your trusted BKD advisor. BKD has prepared a library of BKD Thoughtware® on this topic. Visit our website to learn more.

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