IASB/FASB Insurance Contracts Project - Meeting summaries

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08/18/2014 by Insurance

Insurers currently use a variety of different and largely inconsistent local approaches to measure the value of insurance contracts within their financial statements which can make it difficult to compare companies and may fail to reflect the true economic value of insurance business, putting insurers at a disadvantage when competing for capital. In response and after long deliberations, the FASB and IASB released proposals which represent a transformational change in the way that insurance contracts are measured and reported in the financial statements.

Under the proposed FASB guidance, there would be changes to the earnings pattern of underwriting and net investment margins and changes in the pattern and amount of revenue. In addition, there would likely be increased income statement volatility due to the requirement to update assumptions each period. Income statement volatility would be somewhat mitigated by the requirement that the impact of changes in discount rate assumptions be recorded in other comprehensive income.

Adoption will have significant impacts on business strategy, investor education, key performance indicators, underlying processes, systems, internal controls, valuation models, and other fundamental aspects of the business. The proposals are in the “comment period” until October 25th, providing stakeholders with a window of opportunity to analyze, prepare and provide input into the final decision-making.

How PwC can help

PwC helps insurers formulate an informed response to the insurance contracts exposure draft and provide management/audit committee a high level assessment of the impact on the business. We provide:

  • Extensive, related experience and expertise and an interdisciplinary approach that results in independent insights that complement your analysis;
  • Prompt analysis of implementation and reporting implications to help you meet deadlines (such as comment period requirements);
  • A better understanding of how changes to insurance contracts accounting fits with overall changes to the risk, finance, and actuarial functions;
  • A practical approach to help you better align actuarial resources with changing business and reporting requirements;
  • A balanced assessment of the investment required to achieve compliance while recognizing uncertainty of timing and scope of required changes.

What's insurers should be doing by now

Insurers should assess the impact to their products, systems, and investor reporting in order to respond to the proposals by:

  1. Analyzing potential impacts on and opportunities for the business;
  2. Considering informed and measured decisions on business planning and strategy as a result of this analysis; and
  3. Making any necessary, substantive comments on the proposed standards, communicating areas where the proposals are not providing decision-useful information, identifying key issues and providing proposed solutions, and considering the challenges/costs/benefits of implementation.

Joint board meeting and education session summary notes

FASB/IASB Joint Board Meetings

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FASB Education Sessions

IASB Board Meetings

IASB Education Sessions