February 19, 2021

2021 Risks: “Business Interruption” Tops the List

Allianz has issued its annual “risk barometer” – which identifies the top 10 risks for the upcoming year based on a survey of nearly 2800 brokers, underwriters, senior managers and claims experts in the corporate insurance sector. It’s always a helpful read for identifying macro trends and issue spotting for your risk factors, although of course you need to tailor those to explain how the macro factors specifically affect your business.

“Business interruption” has been the top risk for 5 of the last 6 years – last year was the exception, with people worrying that cybersecurity would be the thing that kept us up at night in 2020. For 2021, “business interruption” is back at the top – which seems prescient in light of this week’s power grid failure in Texas and the SEC’s informal reminders to companies that they should have contingency plans to be able to carry on operations during emergencies. The risk of a pandemic outbreak is #2. Cyber incidents are hanging in there at #3 and are considered a potential “Black Swan.”

Here’s an excerpt:

When asked which change caused by the pandemic will most impact businesses, Allianz Risk Barometer respondents cited the acceleration towards greater digitalization, followed by more remote working, growth in the number of insolvencies, restrictions on travel/less business travel and increasing cyber risk. All these consequences will influence business interruption risks in the coming months and years.

The knock-on effects of the pandemic can also be seen further down the rankings in this year’s Risk Barometer. A number of the climbers in 2021 – such as market developments, macroeconomic developments and political risks and violence – are in large part a consequence of the coronavirus outbreak. For example, the pandemic was accompanied by civil unrest in the US related to the Black Lives Matter movement, while anti-government protest movements simmer in parts of Latin America, Middle East and Asia, driven by inequality and a lack of democracy. Rising insolvency rates could also affect supply chains.

All that said, only 3% of survey participants were worried about a pandemic at this time last year. So, one of the main takeaways I gleaned this year was that it’s pretty difficult to predict the “next big thing.”

Transitioning to “Non-Accelerated” Filer Status: What Year Do You Use for the Revenue Test?

We’ve been fielding a ton of questions from members in our Q&A Forum these past few weeks. Here’s one that could affect your 10-K deadline (#10,573):

Company is currently an accelerated filer and a smaller reporting company. As of June 30, 2020, their public float was between 75 and 250 million (approx. 100 million). Its FY 2019 revenue was above 100 million; however, its FY 2020 revenue is below 100 million.

My question is for determining whether it transitions to non-accelerated status, should company use the FY 2019 or FY 2020 revenue for the SRC revenue test exception to accelerated filer status? The rule says it is the revenue as of the most recently completed fiscal year but do not know if that determination is made as of June 30 like with public float or now. If company uses FY 2019, then they would still be an accelerated filer but using FY 2020 I believe they would be a non-accelerated filer.

John responded:

Under Rule 12b-2, accelerated filer status is assessed at the end of the issuer’s fiscal year, and the applicable SRC revenue test is based on the most recently completed fiscal year for which financial statements are available. Since the 2020 financial statements won’t be available at the time when the assessment is made, I believe that you will continue to look at the 2019 financials in determining whether the issuer remains an accelerated filer during 2021.

I think that position is also consistent with footnote 149 of the adopting release, which indicates that a company will know of any change in its SRC or accelerated filer status for the upcoming year by the last day of its second fiscal quarter. Here’s an excerpt:

“Public float for both SRC status and accelerated and large accelerated filer status is measured on the last business day of the issuer’s most recently completed second fiscal quarter, and revenue for purposes of determining SRC status is measured based on annual revenues for the most recent fiscal year completed before the last business day of the second fiscal quarter. Therefore, an issuer will be aware of any change in SRC status or accelerated or large accelerated filer status as of that date.”

Transcript: “Conflict Minerals & Resource Extraction – Latest Form SD Developments”

We’ve posted the transcript for our recent webcast – “Conflict Minerals & Resource Extraction: Latest Form SD Developments” – which covered these topics:

1. Rule Status & Current SEC Guidance

2. Observations From 2020 Form SD Filings

3. How Disclosure Should Be Changed for 2020

4. NGO Expectations & Surveys

5. Resource Extraction: Payment Disclosures

Liz Dunshee