Accounting for COVID-19 Inspired Premium Relief

UPDATED: June 19. 2020 at 1:30 PM

Note: The SAPWG adopted its final interpretation (INT 20-08) at its June 15, 2020 meeting, retaining the primary conclusions reached in the exposed interpretation. Read more on the BSSF Blog here.

INT 20-08T – COVID-19 Premium Refunds, Rate Reductions and Policyholder Dividends


In response to reductions in commercial and non-commercial activity, including automotive usage, resulting from COVID-19 related business shutdowns and stay at home orders across the United States, many insurers have announced premium refunds, credits, rate reductions or policyholder dividends to effectively return premiums to policyholders as a result of the reduced exposure inherent in these reductions. The NAIC recognized various accounting issues related to these announcements and has issued INT 20-08T to address these issues.


On May 5, the NAIC Statutory Accounting Principles (E) Working Group (SAPWG) released additional interpretations (INTs) for public exposure relating to the COVID-19 pandemic, including proposed guidance for insurers providing policyholders with premium relief in the form of refunds, rate reductions and policyholder dividends.

INTs are tentative interpretations with proposed statutory accounting guidance being exposed by the SAPWG for public comment.  The SAPWG is scheduled to discuss and may adopt these COVID-19 related proposals on Wednesday, May 20.  Therefore, industry comments are due by Thursday, May 14.


INT 20-08T – COVID-19 Premium Refunds, Rate Reductions and Policyholder Dividends provides statutory accounting guidance for premium refunds on property-casualty policies inspired by COVID-19.  The proposed guidance is broken down into “issues” representing the various types of premium relief.

  • Issue 1: Accounting for refunds not required under the policy terms (voluntary refunds)
  • Issue 2: Accounting for refunds required under the policy terms (involuntary refunds)
  • Issue 3: Accounting for rate reductions on in-force or renewal business
  • Issue 4: Accounting for policyholder dividends related to COVID-19

The proposed statutory accounting guidance for each identified issue is discussed in more detail below.

Issue 1: Accounting for refunds not required under the policy terms (voluntary refunds)

Accounting for as an immediate adjustment to written or earned premium.

  • The SAPWG believes this treatment is consistent with SSAP No. 53-Property Casualty Contracts-Premiums and SSAP No. 66-Retrospectively Rated Contracts.
  • The SAPWG reached tentative consensus that reporting the voluntary refund as an expense is not consistent with statutory accounting guidance and would inappropriately present expense ratios in the statutory accounting financial statements. Reporting the refund as an expense, or any other method besides a decrease to premium, would need to be considered a permitted or prescribed practice. Furthermore, SAPWG believes:
    • Reporting the refund as a miscellaneous underwriting expense is not consistent with the underwriting expense description and inconsistent with the characterization of the amount as a return of premium.
    • Reporting the refunds as premium balances charged off (e.g., bad debt expense) is inconsistent with guidance in SSAP No. 53, paragraph 14, on earned but uncollected premium. It is also inconsistent with the annual statement instructions as the amount is not an uncollectible amount, but rather a voluntary choice by the reporting entity to reduce the amount charged

Issue 2: Accounting for refunds required under the policy terms (involuntary refunds)

While most of the COVID-19 inspired premium refunds are voluntary or jurisdiction-directed and not required under the policy terms, some policies have terms that require an adjustment to premium based on either the level of exposure to insurance risk or the level of losses. If the policy terms change the amount charged, existing guidance in SSAP No. 53 or SSAP No. 66 continues to apply.

Issue 3: Accounting for rate reductions on in-force or renewal business

Rate reductions, as opposed to refunds, can take the form of:

(a) limited-duration price decreases towards future payments on in-force policies, or

(b) offers of rate reductions on future coverage period renewals.

The SAPWG reached tentative consensus that rate reductions on in-force business be recognized as immediate adjustments to premium, and rate reductions on future renewals be reflected in the premium rate charged on renewal.  The rationale behind the latter (renewal business) is because that while the amount of future rate reductions can be estimated, it is not a change to existing policy terms and policyholders are not obliged to renew.

Issue 4: Accounting for COVID-19 related policyholder dividends

SSAP No. 65—Property and Casualty Contracts, paragraph 46 requires that dividends to policyholders immediately become liabilities when declared and shall be recorded as a liability

Additional Insights

Annual Statement Disclosure:

To allow for aggregate, consistent assessment, the SAPWG came to a tentative consensus that all COVID-19 inspired premium refunds, rate reductions and policyholder dividends shall be disclosed as unusual or infrequent items in Annual Statement 21A. This disclosure is in addition to other existing disclosures on various items related to the policyholder payments.

Premium Taxation:

Premium taxation requirements will vary by jurisdiction. Taxation is determined by the jurisdiction where the premium is written/returned to the policyholder according to the laws of that jurisdiction.


COVID-19 has led to unprecedented times and unanticipated business decisions.  Accounting for these business decisions can be complex and uncertain as more information becomes available on what seems like a daily basis.  To further discuss any such complex accounting matters, or any other issues impacting your insurance company, please contact BSSF’s Property & Casualty Insurance Practice.


As a reminder, INT 20-08T is tentative until approved by SAPWG and subject to change as a result of public comments and further consideration by SAPWG. The SAPWG is scheduled to discuss and may vote to adopt these COVID-19 related interpretations on Wednesday, May 20.  Therefore, industry comments are due to the SAPWG by Thursday, May 14.

Full copies of the NAIC SAPWG exposed items, including INT 20-18T, are posted on the SAPWG web page. (Navigate to the Exposure Drafts tab.)

Disclaimer: This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our Firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.