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New Requirements in Financial Reporting for Insurance Companies - Do They Affect You?


Last week the Financial Accounting Standards Board (FASB) issued a long-awaited accounting standards update (ASU) that will change reporting requirements for insurance companies that issue long-duration contracts, including life insurance, disability income, long-term care and annuity products.  The objective of this new standard is to provide investors with better, more easily understandable information on their investments.

Key Takeaways

  • There is a significant change in accounting for long-duration contracts, regarding how they are measured. The guidance includes a new requirement that insurers review and update cash flow assumptions for measuring the liability for future policy benefits annually. (Discount rate assumptions used to measure liability for future policyholder benefits must be updated quarterly.)
  • New disclosures about insurance liabilities and deferred acquisition costs will be required. Most significantly, new disclosures of disaggregated tabular rollforward of the beginning to ending balances and reconciliation from the disclosures to the financial statements.
  • There is a new category of market risk benefits (i.e., features that protect the contract holder from capital market risk and expose the insurer to that risk) that insurers will have to measure at fair value.
  • Changes will be effective in 2021 for calendar-year public companies. For non-public calendar-year companies, the changes will be effective in 2022. Early adoption is permitted.

This new guidance is the result of over ten years of outreach and research with industry stakeholders, as well as input from users, preparers, auditors and other industry groups.

 “The new ASU provides investors and other financial statement users with better and more timely and transparent information about long-term contracts issued by insurance companies,” said FASB Chairman Russell G. Golden.

This new guidance recognizes that assumptions made at the time of a contract’s inception may not hold five, ten or fifty years later. Companies will now be required to annually review and, if necessary, update their assumptions for liability measurement.

This represents a significant change from the current guidance, which allows insurers to base their liability for future policyholder benefits in long-duration contracts on assumptions that are fixed at the start of the contract.

“…in some cases almost half a century or even longer could be the life of one of these products.  Using assumptions that are that outdated really doesn't provide particularly current and useful information to investors, and it’s an area where I think there was almost universal agreement that there was a need for improvement to update that,” said FASB vice Chairman James Kroeker.

The guidance will also create a new category of benefit features called “market risk benefits.” These benefits will offer the contract holder protection from capital market risk while exposing the insurer to that risk.

Other changes include simplification of the amortization of deferred acquisition costs. The existing earnings-based amortization methods are being replaced with a more level amortization basis.

Insurers will also be required to provide enhanced disclosures. This includes rollforwards and information about significant assumptions and the effects of changes in those assumptions.

“There’s a lot of moving parts in an insurance net liability,” said Kroeker. “There are premium payments that come in and payments that go out to beneficiaries. There’s the impact of assumption changes, accretion because of the passage of time, all of which impact your net number, which is the net insurance liability. A rollforward of that will help investors understand much more easily how this number got from X to Y.”

More information on these changes is available at the FASB website where you can review a summary of the ASU and an educational video.

For personalized information and advice on the implementation of this new guidance, contact Kyle Dodwell, Manager in Insurance Advisory Services  at or 314.983.1388.




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