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CECL for HTM investments and reinsurance receivables - your questions answered
During our latest CECL Tuesday talk-through we answered submitted questions on CECL implementation for HTM investments and reinsurance receivables. This informative article reviews the questions we answered in our session.
Factors to consider in determining expected losses:
- Expected term of the exposure
- Reinsurer’s ability to pay
- Collateral arrangement
Pooling considerations
- Reinsurance agreements with standardized terms
- Counterparties have similar: credit ratings, financial characteristics, economic conditions
Key takeaways:
- Credit rating for reinsurers is key and a lot of industry data is by rating
- Term is important – is it short-term (property & casualty) or long-term (life insurance)
Key takeaways:
- PD/LGD & DCF models are typical based on cash flow estimates
- Materiality is commonly low with highly-rated securities – however still need support for why it is immaterial
- AFS are scoped out of CECL
Key takeaways:
- Forecasting a zero credit loss amount is appropriate in certain circumstances : HTM investments in U.S. Treasuries, GNMA, FNMA, and FRMC securities
- Must contain guarantees by the U.S. government
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CECL for HTM investments and reinsurance receivables - your questions answered
Baker Tilly recently hosted an informative webinar on CECL, read our takeaways on CECL for HTM investments and reinsurance receivables
