FASB proposes changes to long-duration contract reporting for insurance companies

By Ken Tysiac

FASB proposed changes to accounting rules Thursday that are designed to improve financial reporting 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, would:

  • 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.

Ken Tysiac (ktysiac@aicpa.org) is a JofA editorial director.

SPONSORED REPORT

Implementing a global statutory reporting maturity model

Assess your organization's capabilities and progress toward an ideal state of global statutory reporting. Sponsored by Workiva.

100th ANNIVERSARY

Black CPA Centennial, 1921–2021

With 2021 marking the 100th anniversary of the first Black licensed CPA in the United States, a yearlong campaign kicked off to recognize the nation’s Black CPAs and encourage greater progress in diversity, inclusion, and equity in the CPA profession.