Johnson Lambert is dedicated to keeping you current on the impact of the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) Topic 326 – Financial Instruments – Credit Losses. This white paper presents the most significant changes related to applying ASC Topic 326 to insurance companies, managing general agents (MGAs), and related organizations.
Background
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, the first of several ASUs that created and amended ASC Topic 326. The standard requires entities to record the current expected credit loss (CECL) on certain financial assets, taking into consideration historical information, current losses, and, for the first time, reasonable and supportable forecasts to project expected future losses. The CECL model addresses perceived shortcomings of the previous incurred loss impairment model by taking into consideration future economic changes (allowing credit losses to be recognized earlier). The model also permits recognition of potential improvements in estimated losses in the income statement in future periods, rather than the one-way “permanent impairment” model used prior to this standard. Additionally, the guidance amends the impairment model for available-for-sale (AFS) debt investment securities. AFS debt securities do not follow the CECL model as they are recorded at fair value rather than amortized cost. Amendments were made to the impairment model for these securities, which is discussed later in this paper. The standard is effective for calendar years beginning after December 15, 2022, for nonpublic companies.
If you have any questions about this white paper, contact the Johnson Lambert team.
