New FASB guidance revises key elements of the measurement models and disclosure requirements for long-duration contracts issued by insurers and reinsurers. It is the biggest change in US GAAP reporting for life insurers in the last 40 years.
The FASB’s objective is to improve, simplify, and enhance accounting for long-duration contracts. Overall, there may be a significant impact to reported earnings and increased earnings volatility. Additionally, the implementation effort will require significant changes to systems, processes, and controls, and likely require the accumulation of data that has not previously been captured and included in the actuarial models in the format and grouping needed for the measurement.
This In depth details the new guidance and has been updated as of May 16, 2019 to reflect our latest thinking on certain accounting implementation issues impacting life insurers adopting the new insurance guidance. The impacted sections have been marked as revised. In addition, we’ve added an appendix with FAQs and another detailing the disclosure requirements.
After more than a decade, the FASB published a new standard in August 2018 which provides for Targeted Improvements to the Accounting for Long-Duration Contracts. The new standard is only applicable for insurers and reinsurers. Despite the name "targeted improvements", the new standard has very significant impacts to the accounting for long duration contracts. There are four major changes in the new standard, which include: (1) the calculation of the liability of future policy benefits, (2) a simplified amortization method for deferred acquisition costs, (3) recording market risk benefits at fair value, and (4) enhanced disclosures. Watch our video for a quick walk through of each of these changes, and read our In depth.
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