Insurance companies may be unprepared for CECL, which is currently more top-of-mind for their banking counterparts (partly because banking regulatory reporting follows GAAP). However, insurance industry regulators indicate that they will adopt CECL, or potentially an even more conservative approach. Insurers are now realizing that while in-scope assets may be limited, the impact on financial statements may be material and internal processes will be impacted.
The National Association of Insurance Commissioners (NAIC) has indicated that they will be moving towards an expected loss model. As Julie Gann, a senior manager with the NAIC said, “If we don't go toward something for expected credit losses, we would be the only standard setter still on the incurred loss model. We have conservatism in our statement of concept, so that would clearly not be more conservative than U.S. GAAP."
Consequently, insurance companies will need to support the impact of the CECL allowance on both GAAP and statutory reporting. This change will take time to calculate, understand, and articulate in the required disclosures. The principles-based expected credit loss standard (CECL) requires a deep understanding of an institution’s data and methodology choices, resources not traditionally involved in financial reporting, and more management oversight. As a result, insurers will need to educate stakeholders, upgrade system capabilities, boost internal controls, and institute flexible and robust reporting.
Now is a good time for insurers to make fast strides towards CECL adoption, and SS&C can help. We offer more than 30 years of insurance statutory accounting and reporting expertise along with extensive knowledge of the CECL standard and practical implementation experience helping other financial institutions execute their CECL process in a controlled manner from end-to-end. Learn more.