FASB/IASB Insurance Contracts Project

Since February of 2014, the FASB’s focus on accounting for insurance contracts has been to explore potential targeted improvements to existing US GAAP. The project is divided into two components, short-duration and long-duration insurance contracts.

For short-duration contracts (principally property/casualty and health insurance contracts), the final FASB Accounting Standards Update (ASU) No. 2015-09, “Disclosures about Short-Duration Contracts” was issued in May 2015. The disclosures are aimed at providing users of financial statements with more transparent information about an insurance entity’s initial claim estimates and subsequent adjustments to those estimates, methodologies and judgments in estimating claims, and the timing, frequency and severity of claims. The new disclosures may require the accumulation and reporting of new and different groupings of data by insurers for US GAAP reporting from what is currently captured for U.S. statutory and other reporting purposes.

The FASB disclosures are effective for year-end 2016 financial statements for public, calendar year-end entities and for interim financial reporting periods thereafter. Non-public business entities will have a one year deferral (i.e., year end 2017 for calendar year-end entities). Early application is permitted. See PwC’s In Brief.

For long-duration contracts (principally life and annuity contracts), the FASB is focusing on enhancements to both accounting and disclosures. These include the potential updating of assumptions used in calculating various insurance liabilities, simplifications to deferred acquisition cost amortization models, and reconsideration of the measurement model for minimum death benefits and income benefits.

The project’s revised objective in 2014 is a dramatic change from the FASB’s former comprehensive joint project with the IASB. The objective of that project, still in process at the IASB, was to develop common, high-quality guidance that would address recognition, measurement, presentation, and disclosure requirements for insurance contracts. Joint deliberations with the IASB from 2008 through 2013 ultimately led to the issuance of exposure drafts by the respective Boards in June 2013; however, the two boards reached different conclusions on several key areas. The FASB’s decision to narrow its focus was in large part due to feedback from US investors and preparers who favored targeted improvements to existing US GAAP in the event that substantial convergence with the IASB’s proposed insurance model became unlikely.

For long-duration insurance contracts, FASB deliberations are ongoing and expected to continue through 2015. To the extent the FASB proposes targeted improvements to existing accounting guidance for long-duration contracts, a formal public comment process is likely.

For current information about the FASB’s ongoing insurance project focusing on targeted improvements for long-duration contracts, see below for PwC summaries of the FASB deliberations.

For current information about the IASB’s comprehensive insurance project, see below for PwC summaries of IASB deliberations.

How PwC can help

PwC helps insurers formulate an informed response to the insurance contracts exposure draft and provide management/audit committee a high level assessment of the impact on the business. We provide:

  • Extensive, related experience and expertise and an interdisciplinary approach that results in independent insights that complement your analysis;
  • Prompt analysis of implementation and reporting implications to help you meet deadlines (such as comment period requirements);
  • A better understanding of how changes to insurance contracts accounting fits with overall changes to the risk, finance, and actuarial functions;
  • A practical approach to help you better align actuarial resources with changing business and reporting requirements;
  • A balanced assessment of the investment required to achieve compliance while recognizing uncertainty of timing and scope of required changes.

What insurers should be doing by now

Insurers should assess the impact to their products, systems, and investor reporting in order to respond to the proposals by:

  1. Analyzing potential impacts on and opportunities for the business through additional analysis and or modelling key products;
  2. Considering informed and measured decisions on business planning and strategy as a result of this analysis;
  3. Considering the similarities of proposed changes with other regulatory initiatives such as principles-based reserving and the ability to leverage common processes or enhance the financial reporting infrastructure while implementing these changes;
  4. Developing substantive comments on the proposed changes, including potential alternatives;
  5. Participating in industry groups and training throughout the organization.




FASB Insurance Projects: Short Duration Disclosures and Long Duration Targeted Improvements - PwC Summaries of FASB Meetings

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IASB Insurance Contracts Project – PwC Summaries of IASB Meetings

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FASB/IASB Joint Meetings

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