The FASB and IASB expect to issue exposure drafts on accounting for insurance contracts by the end of June 2013 with a 120-day comment period. The boards have developed a comprehensive proposal that would address recognition, measurement, presentation, and disclosure. "Insurance contracts" would be broadly defined, and the guidance would apply to contracts as opposed to a class of entities, unlike current U.S. GAAP, resulting in implications for entities that are not insurers, such as banks.
Given the potential implications of the changes being considered, entities should be engaged in assessing the impact to their products, systems, and investor reporting and consider commenting on the proposal.
Key aspects of the proposal will include the requirement to use a “current value” discounted cash flow measurement for the insurance contract liability. Any excess of expected premiums over expected claims and expenses would be deferred as “margin" and amortized into income over future periods. Expected losses would be recognized immediately. A modified approach would apply for short duration contracts (e.g., property/casualty contracts) meeting specified criteria, similar to today’s unearned premium approach.
Dataline 2013-19 supersedes Dataline 2013-11 to reflect the tentative decisions expressed in the FASB and IASB EDs issued on June 27 and June 20, respectively.