Accounting for insurance contracts

The FASB has been focused on making targeted improvements to the insurance guidance in U.S. GAAP as part of two distinct projects, one focused on short-duration contracts and a second focused on long-duration contracts.

  • The FASB has completed its redeliberations for short-duration contracts and issued ASU 2015-9 on May 21, 2015, which does not impact current accounting, but instead calls for enhanced disclosure. Disclosures include disaggregated, incurred, and paid claim development tables not to exceed 10 years (including the most recent reporting period presented in the statement of financial position; each period that precedes the current reporting period is considered to be required supplementary information); a reconciliation of incurred and paid claims development information to the aggregate carrying amount of the liability for unpaid claims; disclosure of the number of claims and IBNR plus expected development on reported claims for each accident year in the development tables; quantitative and qualitative information about claim frequency; and adding additional qualitative information in liability estimates. The amendments are effective for public business entities for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. All other entities have an additional year to comply with the amendments. Early adoption is permitted.
  • The FASB redeliberated possible targeted improvements to the accounting for long-duration contracts under existing U.S. GAAP, and voted unanimously to unlock assumptions used in determining the liability for future policy benefits for traditional long duration contracts, limited-payment contracts, participating life contracts, and the additional liability for universal life-type contracts. The FASB subsequently considered how companies would unlock the assumptions and voted on a retrospective model where cash flow changes (assumptions) would be recorded in the income statement and the impact of changes in discount rates would be recorded immediately through other comprehensive income. The FASB had originally voted that assumptions would be updated annually during the fourth quarter, but in light of recent discussions, the board is expected to revisit this conclusion. Additionally, the FASB has discussed that the discount rate used to reflect the time value of money in the calculation of the liability for future policy benefits would be the rate of return on a reference portfolio of high-quality fixed income investments. Another targeted improvement relates to simplifying the deferred acquisition costs (“DAC”) amortization method. The board voted unanimously that DAC would be amortized over the expected life of a book of contracts in proportion to the amount of insurance in-force, or on a straight-line basis if the amount of insurance in-force is variable and cannot be reliably predicted or is otherwise not readily determinable. In computing amortization, no interest would accrue to the undiscounted balance of capitalized acquisition costs.
  • Although the FASB has decided to pursue targeted improvements to U.S. GAAP rather than write a new comprehensive standard, the resulting differences from existing GAAP could still be significant for long-duration contracts.
  • The enhanced disclosures for short-duration contracts will include information that has not previously been disclosed, such as ten years of disaggregated claims data. The new disclosures may require the accumulation and reporting of new and different groupings of claims data by insurers from what is currently captured for U.S. statutory and other reporting purposes. Processes and systems will likely need to be updated to capture the data at a new level of detail and categorization.

In depth: FASB issues enhanced disclosure guidance for insurer claim liabilities


Enhanced insurance contract disclosures may create new and different reporting of claim data for insurers. The FASB’s recent amendment to ASC 944 calls for enhanced disclosures focused principally on expanding reported information about net incurred and paid claim data.

IASB/FASB Insurance Contracts Project - Meeting summaries


Insurers currently use a variety of different and largely inconsistent local approaches to measure the value of insurance contracts within their statutory financial statements. This diversity makes it difficult to compare companies and may fail to reflect the true economic value of insurance business, which can put insurers at a considerable disadvantage when competing for capital.

In depth: FASB issues enhanced disclosure guidance for insurer claim liabilities


Enhanced insurance contract disclosures may create new and different reporting of claim data for insurers.

In brief: FASB issues enhancements to disclosure requirements for insurers


The short-duration insurance contract disclosures may create new and different reporting of claim data for insurers.

Adding it all up: Modern rating systems for P&C carriers


Sophisticated rating capabilities are rapidly becoming the new normal for P&C carriers. Today’s rating solutions provide advanced usage-based models and other analytics that can help carriers thrive in a market being transformed by telematics and new pricing strategies. But many carriers have stumbled on the path to modernization. We explore the most common challenges, and discuss four steps carriers are taking to make the most of their rating modernizations.

Point of view: Insurance contract accounting: The path forward


If a single global insurance accounting standard is not achieved, PwC believes the FASB should only make targeted enhancements to its existing standards.

PwC comments on FASB's proposed ASU: Insurance Contracts


PwC supports a converged standard. In the absence of a converged standard, we would support making targeted changes to current US GAAP.

Dataline: Fixed-fee service contracts – FASB and IASB exposure drafts on insurance contracts may impact fixed-fee service contracts


The FASB and IASB issued exposure drafts related to insurance contracts that may change the accounting by non-insurers that sell fixed-fee service contracts.

Dataline: Insurance contracts – FASB and IASB exposure drafts issued in June 2013 would significantly change accounting for insurance contracts


The FASB and IASB issued exposure drafts that would fundamentally change the accounting by insurers and other entities that issue contracts with insurance risk.

Revised exposure draft on leases may have significant tax accounting, state tax, and systems implications


The FASB and the IASB issued a revised exposure draft on leases. Although the tax law regarding the treatment of leasing transactions remains unchanged, taxpayers should consider how the Exposure Draft will impact the computation of federal and state taxable income and deferred income tax assets and liabilities associated with their leases.

Dataline: Insurance contracts - An exposure draft is expected in Q2 2013 that would significantly change accounting for insurance contracts (Superseded by Dataline 2013-19 on 08/14/2013)


The FASB’s proposal, expected in June 2013, on accounting for insurance contracts could fundamentally change earnings patterns for insurers and some banks.