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 (firstname.lastname@example.org) is a JofA editorial director.