The FASB and IASB each issued an exposure draft (ED) related to insurance contracts in June describing proposals that may fundamentally change the accounting by non-insurers that sell fixed-fee service contracts.
Among other things, the proposals would apply to contracts rather than entities, as such; many non-insurers may be in the scope of the proposals. The proposals would require the use of a “current value” discounted cash flow measurement for insurance contract liabilities. 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.
Given the significance of the proposals, non-insurers should assess their fixed-fee service contracts to determine if they would be in scope. If an entity is within the scope of the proposals it could have a significant impact on its financial results, systems, and investor reporting.