SUMMARY OF BOARD DECISIONS
Summary of Board decisions are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions are included in an Exposure Draft for formal comment only after a formal written ballot. Decisions in an Exposure Draft may be (and often are) changed in redeliberations based on information provided to the Board in comment letters, at public roundtable discussions, and through other communication channels. Decisions become final only after a formal written ballot to issue an Accounting Standards Update.
February 27, 2013 FASB Board MeetingInsurance contracts. The FASB continued its discussions of the proposed insurance contracts standard. The Board discussed (1) presentation in the statement of financial position and statement of comprehensive income and (2) disclosures for items not previously decided on.
Presentation in the Statement of Financial Position and Statement of Comprehensive Income
The Board affirmed its prior decision that an insurer would present the following in the statement of financial position:
- For the building-block approach, an insurer would present the unconditional right to premiums or other considerations as a receivable separately from the insurance contract asset or liability and accounted for in accordance with existing guidance for receivables.
- For the premium allocation approach, an insurer would disaggregate the liability into components including the liability for remaining coverage, the liability for incurred claims, and the gross premium receivable.
The Board made the following decisions regarding presentation in the statement of comprehensive income. An insurer would present:
- Insurance contract revenue from contracts measured using the building-block approach separately from contracts accounted for using the premium allocation approach.
- Insurance contract revenue and expenses arising from ceded reinsurance contracts separately from other revenue and expenses
- Insurance contract revenue for ceded reinsurance contracts separately for the building-block and the premium allocation approaches
- Benefits and claims incurred (including for reinsurance) separately arising from contracts measured using the building-block approach would be presented separately from benefits and claims incurred from contracts accounted for using the premium allocation approach.
- Interest accreted on the expected cash inflows in the respective revenue line item
- Interest accreted on the expected cash outflows in interest expense.
The Board decided the following about the insurance contract liabilities and liabilities for incurred claims:
- An insurer would provide a reconciliation of the opening and closing balance of the insurance liability (or asset) (BBA) and the liability for incurred claims (PAA).
- When applying the general disaggregation criteria to the reconciliations in (1), an insurer would not aggregate amounts from different reportable segments.
- An insurer would include line items in the reconciliation of opening and closing balances that provide sufficient detail to understand:
Furthermore, the Board instructed the staff to include in implementation guidance how an insurer could achieve the objectives of the reconciliation.
- New business
- Cash flows
- Changes in assumptions
- Time value of money.
- The notes to the financial statements would explain the significant drivers of the changes in the insurance liability and liability for incurred claims.
- An insurer would disclose the insurance liability balance for business assumed in reinsurance transactions.
- A reconciliation of the opening and closing balance for the single margin disaggregated in a similar manner to the disaggregation of the reconciliation of the insurance liability that provides sufficient detail to understand:
- New margin with amounts attributable to expected acquisition costs separately identified
- Margin released
- Balance attributable to expected acquisition costs to be paid.
- Amounts of revenue recorded in the period that arose from the single margin being released because of a portfolio turning onerous, disaggregated in a manner similar to how the insurer disaggregates the reconciliation of the liability.
- The amount of the acquisition costs incurred but not yet amortized in the statement of comprehensive income (that is, embedded in the single margin)
- Furthermore, the Board instructed the staff to include in implementation guidance items that could be provided as part of the reconciliation.
The Board decided that an insurer would disclose the following information about a reinsurance receivable:
- A reconciliation of opening and closing balances disaggregated in a similar manner to the disaggregation of the reconciliation of the insurance liability.
- The balance of reinsurance receivable related to paid claims.
- The amount the insurer records to the allowance as uncollectible in the period in a similar manner to the reconciliation of the opening and closing balance of the reinsurance receivable. Those amounts should be further disaggregated between those amounts related to credit and those related to disputes.
- The amount of gains or losses arising from commutations of reinsurance agreements.
- Disaggregation of the amount recorded in the statement of comprehensive income during the period that results from a portfolio becoming onerous.
- The balance of premiums received but not yet earned on the insurance component for contracts accounted for using the building-block approach.
- The amount of premiums received allocated to the investment component during the period.
- A table of expected cash outflows along with the corresponding weighted-average current discount rate and weighted-average interest accretion rate.
- A disaggregation of the disclosure in a similar manner to the disaggregation of its reconciliation of the insurance liability.
- The information in the following time bands:
- For BBA:
- Amounts and rates related to the first two five-year time bands
- Each of the next two ten-year time bands following the 10th year and up to the 30th year
- The total for years following the 30th year after the reporting date.
- For PAA:
- Each of the first five years after the reporting date
- The next two five-year time bands following the first five years after the reporting date
- The total for years following the 15th year after the reporting date.
- For BBA:
- Any additional information about amounts and rates within the time bands provided that affect the weighted average significantly.
- A table of expected receipts from reinsurance receivables in the same manner and time bands as the related expected cash outflows along with the corresponding weighted-average current discount rates and weighted-average interest accretion rates.
- The nature of the key inputs used to measure the liability disaggregated by significant types of insurance.
- Information about compliance with separate insurance regulatory frameworks, including:
- The amount of minimum capital necessary to satisfy the insurer’s regulatory requirements
- The amount of regulatory capital
- Any regulatory restrictions on the insurer’s ability to pay dividends or principle and interest on loans or notes
- Whether a regulatory event would have been triggered had the insurer not used a permitted regulatory/statutory accounting practice.
- The methods and assumptions for the unbundling of goods, services, or investment components and the nature of the items being unbundled.
- The general criteria on which the participation features of the contracts are based and the amount during the period that accrued to the benefit of the policy holders due to those features.
- For contracts in which the insurer’s nondiscretionary obligation is contractually dependent on the performance of other assets or liabilities of the insurer or the performance of the insurer itself, and the contract does not qualify as a segregated fund arrangement:
- How participation features are measured (that is, what the participating features are based on) and what is included in the measurement of the liability (that is, the obligation of the insurer)
- If applicable, the quantitative amount of the adjustment to the gross obligation in (a) (that is, the measurement of the asset or liability on which the measurement of the liability is adjusted to) and whether the adjustment is recorded to profit or loss or to other comprehensive income.
- The amount of expected dividends to policy holders not yet declared that are included in the measurement of the liability.
The Board decided that an insurer would disclose the following information about material transactions:
- For material transactions and events during the reporting period for which there are no specific disclosure requirements, such as:
- The restructuring of the entity (for example, demutualization or redomiciliation to another jurisdiction)
- Ceasing the writing of new business (for example, exiting a line of business or creating a closed block of business).
- For those transactions the insurer should provide information that conveys the nature of the transaction and its effect on the insurer’s financial statements.
- Paragraph 250-10-50-1(a)—The nature of and reason for the change in accounting principle, including an explanation of why the newly adopted accounting principle is preferable.
- Paragraph 250-10-50-1(b)(2)—The effect of the change on income from continuing operations, net income (or other appropriate captions of changes in the applicable net assets or performance indicator), any other affected financial statement line item, and any affected per-share amounts for the current period (the disclosure in this paragraph for prior-period amounts would still be required).
- Paragraph 250-10-50-3—In the fiscal year in which a new accounting principle is adopted, financial information reported for interim periods after the date of adoption shall disclose the effect of the change on income from continuing operations, net income (or other appropriate captions of changes in the applicable net assets or performance indicator), and related per-share amounts, if applicable, for those post-change interim periods.
The Board decided that an insurer would provide a reconciliation of opening and closing balances of the insurance liability (or asset) (BBA) and the liability for incurred claims (PAA) when it reports interim results.
The Board decided the following about private companies:
- A nonpublic entity would consider the reference to segment reporting as part of the general aggregation criteria; however, nonpublic entities would be exempt from the requirement to provide specified disclosures at a minimum by reportable segment.
- A nonpublic entity would not be required to provide the insurance disclosures required for interim periods.
The Board will continue its discussions at its meeting on March 6, 2013.