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V. Capital Markets
in question rather than in prior periods. If a previously announced or regular review of reserves, estimates or assumptions was not completed on time, companies should disclose this fact, the reasons for the delay and the current status of the review.
The SEC Staff has also commented that companies should discuss in the critical accounting policy section of the MD&A the drivers of changes to loss reserves, including any assumptions that have changed and assumptions that are reasonably likely to change going forward.
4. Acquisitions and Dispositions
As discussed in Section I above, M&A activity and consolidation transactions have been prevalent in the insurance industry over the last couple of years, especially for P&C companies. Acquisition-related accounting and disclosure requirements under ASC 805 vary based on the nature of the transaction, the type of the assets acquired and the liabilities assumed. The SEC Staff has focused comments on enhancing disclosure around the methodology and key assumptions used for the impairment of assessments, the sensitivity of assumptions used to determine fair value, and a description of actual or potential facts, events and circumstances that did or could have an effect on goodwill impairment charges. If any interim goodwill impairment testing has been conducted, the registrant should disclose the results of such tests. If such testing has not been conducted, the registrant should explain why.
5. Captive Subsidiaries
Consistent with the enhanced scrutiny from some state insurance regulators (which is discussed in Sections III.K.3 above and VI.H.1 below), the SEC Staff has continued to request expanded disclosures regarding transactions with captive insurance subsidiaries. The captives are used by companies to insure specific risks for the company and its affiliates. They provide many advantages, including capital management benefits. The SEC Staff has recently commented that sufficient information should be disclosed regarding the nature, purpose and number of transactions with captive insurance companies, how such transactions are accounted for in the company’s financial statements and the risks and uncertainties associated with using captives.
Developments and Trends in Insurance Transactions and Regulation 2015 Year in Review