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Applying the expected credit loss standard to reinsurance recoverables.

A decade removed from the 2008 financial crisis, there are a number of new accounting standards to understand and implement. Regulators worldwide have introduced changes and rules designed to make accounting more forward looking and aligned with a company’s actual credit risk exposure. In the United States, the Financial Accounting Standards Board (FASB) in 2016 introduced the Current Expected Credit Loss Standard (CECL), a new means for assessing expected credit losses, which comes on the heels of similar global accounting changes under International Financial Reporting Standard 9 (IFRS 9). Reinsurance recoverables, the amount due from reinsurers for paid and unpaid insurance claims, are in the scope of the CECL standard, which takes effect in 2020 for most public entities (tentatively 2023 for private companies). This paper is intended to lend some real-world perspective to the questions of how an expected credit loss allowance for reinsurance recoverables may be calculated under this new standard.

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