Since February of 2014, the FASB’s focus on accounting for insurance contracts has been to explore potential targeted improvements to existing U.S. GAAP. The project is divided into two components, short-duration and long-duration insurance contracts.
For short-duration contracts (principally property/casualty and health insurance contracts), the FASB is limiting its proposals to enhancing disclosures. The disclosures proposed by FASB include annual disaggregated incurred and paid claims development tables that need not exceed 10 years, the incurred but not reported claim liabilities included within the incurred claim development table, claim count and interim as well as year-end roll forwards of claim liabilities.
For long-duration contracts (principally life and annuity contracts), the FASB is focusing on enhancements to both accounting and disclosures. These include the potential updating of assumptions used in calculating various insurance liabilities, simplifications to deferred acquisition cost amortization models, and reconsideration of the measurement model for minimum death benefits and income benefits.
The project’s revised objective in 2014 is a dramatic change from the FASB’s former comprehensive joint project with the IASB. The objective of that project, still in process at the IASB, was to develop common, high-quality guidance that would address recognition, measurement, presentation, and disclosure requirements for insurance contracts. Joint deliberations with the IASB from 2008 through 2013 ultimately led to the issuance of exposure drafts by the respective Boards in June 2013; however, the two boards reached different conclusions on several key areas. The FASB’s decision to narrow its focus was in large part due to feedback from U.S. investors and preparers who favored targeted improvements to existing U.S. GAAP in the event that substantial convergence with the IASB’s proposed insurance model became unlikely.
FASB deliberations on short-duration insurance contract disclosures were substantially completed in August 2014. The FASB is not planning on re-exposing these proposed disclosures for formal public comment. The rationale is that most of the proposals were included in the 2013 FASB exposure draft. The FASB disclosures are expected to be effective for year end 2015 financial statements and for interim financial reporting beginning in 2016.
For long-duration insurance contracts, FASB 2014 deliberations are in the early stages. To the extent the FASB proposes targeted improvements to existing accounting guidance for long-duration contracts, a formal public comment process would seem likely, but has not yet been discussed.
For current information about the FASB’s insurance project focusing on targeted improvements for short and long-duration contracts, see below for PwC summaries of the 2014 FASB deliberations.
For current information about the IASB’s comprehensive insurance project, see below for PwC summaries of IASB deliberations.
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:
Insurers should assess the impact to their products, systems, and investor reporting in order to respond to the proposals by: