FASB recently issued Accounting Standards Update (ASU) 2019-04 to address the many implementation issues arising from its new credit impairment model, known as CECL. Buried within the ASU’s 130 pages is 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 originally written, the scope could be interpreted to exclude reinsurance recoverables that result from insurance transactions because they are not measured at amortized cost basis. ASU 2019-04 clarifies FASB’s intent was to include all reinsurance recoverables covered by Topic 944 within the scope of Subtopic 326-20, regardless of the measurement basis of those recoverables.
The adoption of CECL will be complex and likely will require significant hours to implement correctly. 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.