The FASB’s recently released Accounting Standards Update 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts, will significantly change the GAAP accounting measurements (balance sheet and income statements) for traditional nonparticipating long-duration and limited-payment insurance liabilities, as well as the amortization model for deferred acquisition costs (DAC) for most long-duration contracts. In addition, the FASB has moved to a fair value model for all guaranteed minimum benefits (GMxB) that have other-than-nominal capital market risk.
Over the lifetime of a product cohort, accounting models will not affect the total profits earned. However, revisions from historical GAAP will impact the opening GAAP equity, as well as the projected profit emergence timing and potential earnings volatility. In this document, we discuss those potential impacts on and how they may vary by the following product groups:
In order to effectively transition to and then use the new standard, we recommend the following course of action:
US Insurance Practice Leader, PwC US
Richard de Haan
Global Actuarial Leader, PwC US
Managing Director, National Professional Service Group, PwC US