About Impairments - STAT Basis

For Bonds (other than loan-backed and structured securities): An other than temporary impairment shall be considered to have occurred if it is probable that the reporting company will be unable to collect all amounts due according to the contractual terms of the debt security in effect at the date of acquisition. An other than temporary impairment should also be recognized when the reporting entity decides that it will be selling its security prior to maturity at an amount below its carrying value. An impairment shall be recognized as a realized loss equal to the entire difference between the bond's amortized cost and its fair value on the effective date for the recognition of the impairment. For reporting entities required to maintain an Asset Valuation Reserve (AVR) and Interest Maintenance Reserve (IMR), credit related losses are recorded through the AVR and interest related losses are recorded through the IMR.

For loan-backed and structured securities: If the fair value is less than the amortized cost an entity shall assess whether the impairment is other than temporary by making the following analysis: (1) does the entity intends to sell the security or (2) does entity not have intent and ability to retain investment for a period of time to recover the amortized cost. If either (1) or (2) applies, an entity shall recognize an other than temporary impairment. If (1) or (2) does not apply and the entity does not expect to recover the entire amortized cost a credit loss should be recognized based on comparing the present value of cash flows expected to be collected discounted at the security's effective interest rate to the amortized cost of the investment. The excess of amortized cost over the present value of the cash flows is recorded as a credit loss for Life and Fraternal organizations.

Accounting for other than temporary impairments (OTTI) are offset against amortized cost, and the maximum amount of the impairment recognized does not exceed the current amortized cost. You can impair a lot up to the amortized cost. In addition, you can use the Impairment Reason (tag 2921) to further clarify the reason for the impairment.

About Credit and Non-Credit Loss for Debt Securities

For STAT accounting bases used in Eagle's Insurance Accounting solution, the non-credit loss is considered part of the total impairment recognized as a reduction in amortized cost. For Life and Fraternal companies, credit losses are recognized through the Asset Valuation Reserve and non-credit losses on debt securities (interest related losses) are recognized through the Interest Maintenance Reserve. For Property and Casualty, Health and Title companies, you do not have to identify if the impairment is credit or non-credit as the Asset Valuation and Interest Maintenance Reserves do not apply to these companies. Therefore for these companies you can simply identify the impairment amount.

For the STAT accounting basis, the sum of the credit loss (tag 7358) and non-credit loss (tag 7359) must be equal to the total impairment amount. See the following example.

For comparison: For Non-STAT accounting bases, the credit loss field (tag 7358) must be equal to the local cost adjustment (tag 7350). Additionally, edits to the Book Impairment Adjustment panel prohibit the non-credit amount (tag 7359) from exceeding the amortized cost value on the lot. See the following example.