SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

For a full description of significant accounting policies, see Note 2 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. There were no significant changes to the Company’s accounting policies during the nine months ended September 30, 2019.

Accounting Pronouncements Recently Adopted

Accounting Standards Update (“ASU” or “Update”) No. 2016-02 - Leases. The amendments in this Update address certain aspects of recognition, measurement, presentation, and disclosure of leases. The most significant change relates to the accounting model used by lessees. The Update requires all leases with terms greater than 12 months to be recorded on the balance sheet in the form of a lease asset and liability. The lease asset and liability are measured at the present value of the minimum lease payments less any upfront payments or fees. The amendments in the Update became effective for annual and interim periods beginning after December 15, 2018 on a modified retrospective basis. The Company recorded a cumulative effect adjustment as of the date of adoption, January 1, 2019, establishing a right of use asset and lease liability of $21.5 million on its consolidated condensed balance sheet reflected in the property and equipment and other liabilities line items, respectively.

ASU No. 2017-08 - Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this Update require that premiums on callable debt securities be amortized to the first call date. This is a change from previous guidance, under which premiums are amortized to the maturity date of the security. The amendments became effective for annual and interim periods beginning after December 15, 2018. The Company recorded a cumulative effect adjustment as of the adoption date, January 1, 2019, resulting in a $50.8 million reduction to retained earnings, net of income tax.

ASU No. 2017-12 - Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this Update are designed to permit hedge accounting to be applied to a broader range of hedging strategies as well as to more closely align hedge accounting and risk management objectives. Specific provisions include requiring changes in the fair value of a hedging instrument be recorded in the same income statement line as the hedged item when it affects earnings. In addition, after a hedge has initially qualified as an effective hedge the Update permits the use of a qualitative hedge effectiveness test in subsequent periods. The amendments in this Update became effective for annual and interim periods beginning after December 15, 2018 and early adoption is permitted. At adoption, January 1, 2019, this standard did not have an impact on the Company’s operations or financial results.

Accounting Pronouncements Not Yet Adopted

ASU No. 2016-13 - Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. The amendments in this Update introduce a new current expected credit loss (“CECL”) model for certain financial assets, including mortgage loans and reinsurance receivables. The new model will not apply to debt securities classified as available-for-sale. For assets within the scope of the new model, an entity will recognize as an allowance against earnings its estimate of the contractual cash flows not expected to be collected on day one of the asset’s acquisition. The allowance may be reversed through earnings if a security recovers in value. This differs from the current impairment model, which requires recognition of credit losses when they have been incurred and recognizes a security’s subsequent recovery in value in other comprehensive income. The Update also makes targeted changes to the current impairment model for available-for-sale debt securities, which comprise the majority of the Company’s invested assets. Similar to the CECL model, credit loss impairments will be recorded in an allowance against earnings that may be reversed for subsequent recoveries in value. The amendments in this Update, along with related amendments in ASU No. 2018-19 - Codification Improvements to Topic 326, Financial Instruments-Credit Losses, are effective for annual and interim periods beginning after December 15, 2019 on a modified retrospective basis. The Company has completed its scoping and gap analysis with respect to the implementation of the new standard. Additionally, the Company is in the testing phase with respect to its calculation of the allowance for credit losses for its portfolio of commercial mortgage loans and mortgage loan commitments and reinsurance receivables. A vendor-sourced credit loss model will be used to measure the allowance for the majority of the Company’s commercial mortgage loans and unfunded mortgage loan commitments, and the Company will use an internally-developed calculation to measure the allowance for reinsurance receivables. Testing and review activities which have not yet been completed include final user acceptance testing of the vendor model for commercial mortgage loans, as well as final approval of certain model inputs such as economic forecasts and mean reversion parameters which will materially impact the final allowance. The Company is on track to complete its testing and assumption review in the fourth quarter. In addition to development and testing of the calculation of the allowance for credit losses for these assets, the Company continues to implement new processes and controls with respect to the measurement and recognition of the allowance, along with the additional disclosures required by the Update. The Company expects to record a cumulative effect adjustment which includes an additional allowance for credit losses for commercial mortgage loans and reinsurance receivables. The amount of the cumulative effect adjustment cannot yet be reasonably estimated, as the allowance for credit losses recorded as of January 1, 2020 may be materially impacted by a) model inputs that have not been finalized or b) changes in macroeconomic conditions or other events and circumstances that cannot be reasonably forecasted.

ASU No. 2018-12 - Financial Services - Insurance (Topic 944): Targeted Improvements to Accounting for Long-Duration Contracts. The amendments in this Update are designed to make improvements to the existing recognition, measurement, presentation, and disclosure requirements for certain long-duration contracts issued by an insurance company. The new amendments require insurance entities to provide a more current measure of the liability for future policy benefits for traditional and limited-payment contracts by regularly refining the liability for actual past experience and updated future assumptions. This differs from current requirements where assumptions are locked-in at contract issuance for these contract types. In addition, the updated liability will be discounted using an upper-medium grade (low-credit-risk) fixed income instrument yield that reflects the characteristics of the liability which differs from currently used rates based on the invested assets supporting the liability. In addition, the amendments introduce new requirements to assess market-based insurance contract options and guarantees for Market Risk Benefits and measure them at fair value. This Update also requires insurance entities to amortize deferred acquisition costs on a constant-level basis over the expected life of the contract. Finally this Update requires new disclosures including liability rollforwards and information about significant inputs, judgments, assumptions, and methods used in the measurement. The amendments in this Update are currently effective for annual and interim periods beginning after December 15, 2020 with early adoption permitted. However, in October 2019, the Financial Accounting Standards Board (the “FASB”) affirmed their previous decision to delay the effective date of the Update by one year for larger SEC filers and two or three years for others, with early adoption permitted. A final Update is currently being drafted and when issued will extend the implementation deadline for the Company by one year to periods beginning after December 15, 2021. The Company has started its implementation efforts and is currently reviewing its policies, processes, and applicable systems to determine the impact this standard will have on its operations and financial results. While it is not possible to estimate the expected impact of adoption at this time, given the nature and extent of the required changes to a significant portion of the Company’s operations, adoption is expected to have a significant impact on our consolidated financial statements and related disclosures and will require changes to certain of our processes, systems, and controls. 

ASU No. 2018-15 – Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The amendments in this update require customers in a cloud computing arrangement accounted for as a service contract to capitalize implementation costs incurred in the arrangement. Capitalization should be based on the nature of the costs and the project stage at which the cost was incurred. The amendments in the Update are effective for annual and interim periods beginning after December 15, 2019 on either a retrospective or prospective basis. There will be no impact at the adoption date as the Company will adopt the amendments on a prospective basis.