Long-duration contracts for insurance companies subject of FASB proposal

The update is meant to simplify and improve the model.

FASB proposed changes to accounting rules for insurance companies that issue long-duration contracts such as life insurance, disability income, long-term care, and annuities.

The Proposed Accounting Standards Update (ASU), Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, is designed to:

  • Improve the timeliness of recognizing changes in the liability for future policy benefits by requiring that updated assumptions be used to measure the liability.
  • Eliminate the use of an asset rate to discount liability cash flows and instead require cash flows to be discounted at a high-quality fixed-income instrument yield.
  • Simplify and improve the accounting for certain options or guarantees in variable products by requiring these benefits to be measured at fair value instead of using two different measurement models.
  • Simplify the amortization of deferred acquisition costs.
  • Improve the effectiveness of disclosures.

"During outreach on our project to consider potential improvements to the insurance accounting model, stakeholders identified specific areas of financial reporting related to long-duration contracts that could be improved," FASB Chairman Russell Golden said in a news release. "Based on that feedback, the board developed the proposed ASU."

Comments on the proposal are due Dec. 15 and can be submitted at FASB's website.

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