Insurance—Targeted Improvements to the Accounting for Long-Duration Contracts
Last updated on April 6, 2016. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Updated sections are indicated with an asterisk *)
The staff has prepared this summary of Board decisions for information purposes only. Those Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations. Please refer to the main Insurance project page for additional information related to the project.
Due Process Documents
Decisions Reached at Last Meeting
Tentative Board Decisions Reached to Date
Board/Other Public Meeting Dates
PROJECT OBJECTIVEThe objective of the project is to develop targeted improvements to insurance accounting for long-duration insurance contracts. Those improvements may address recognition, measurement, presentation, and disclosure.
DUE PROCESS DOCUMENTSThe FASB issued a proposed Accounting Standards Update, Insurance Contracts (Topic 834), on June 27, 2013. The comment period ended on October 25, 2013.
Details of the Board’s deliberations with the IASB and feedback received on the 2013 proposed Update can be found on the page, Insurance Contracts—Joint Project of the FASB and IASB.
DECISIONS REACHED AT LAST MEETING (March 23, 2016)Transition
Liability for Future Policyholder Benefits
The Board decided that at the beginning of the earliest period presented (that is, “the transition date”), an insurance entity should apply the guidance on the liability for future policyholder benefits retrospectively to all prior periods for each level at which reserves are calculated. The Board decided to require alternative transition provisions for circumstances in which the historical information is unavailable or the application would be impracticable.
Specifically, an insurance entity would be required to apply the following transition methods:
- Retrospectively to all prior periods using actual historical information at the level at which reserves are calculated.
- If actual historical information covering the entire contract period is not available at the level at which reserves are calculated, an insurance entity would be required to use estimates for those periods in which actual historical information is not available. The historical information should be derived from objective information that is reasonably available.
- An insurance entity should recognize in accumulated other comprehensive income the cumulative effect of changes in discount rates between the contract inception date and transition date.
- If it is impracticable to apply the guidance retrospectively to all prior periods at the level at which reserves are calculated, an insurance entity should apply the guidance to in-force contracts on the basis of their existing carrying amounts at the transition date and updated future assumptions. The opening retained earnings balance should be adjusted to the extent that the net premium ratio exceeds 100 percent. The transition date should be considered the contract inception date for purposes of subsequent adjustments.
The Board decided that at the transition date, an insurance entity should measure market risk benefits at fair value in accordance with the guidance. The transition adjustment should be recorded as follows:
- The cumulative effect of changes in an entity’s own credit risk between contract inception date and transition date should be recognized in accumulated other comprehensive income.
- The difference between fair value and carrying value at the transition date, excluding the amount in (1), should be adjusted to opening retained earnings.
The Board decided that the guidance on deferred acquisition costs should be applied as of the transition date on the basis of the existing carrying amounts at that date, adjusted for the removal of any related amounts in accumulated other comprehensive income.
The Board decided that the following disclosures should be required in the year of adoption:
- Information required in paragraphs 250-10-50-1 through 50-3 on a disaggregated basis consistent with that which will be used for recurring disclosures
- If retrospective application is impracticable, the portion of the liability for future policy benefits not subject to retrospective application
- Qualitative and quantitative information about transition adjustments related to (a) a net premium ratio exceeding 100 percent or (b) the establishment of an additional liability for a nontraditional contract.
The staff updated the Board on feedback received on the Board’s tentative decision on the accounting for deferred acquisition costs.
TENTATIVE BOARD DECISIONS REACHED TO DATE (As of March 23, 2016)Tentative Board Decisions to Date
NEXT STEPSThe Board directed the staff to draft a proposed Accounting Standards Update for vote by written ballot. Please refer to the current technical plan for information about the project timeline.
BOARD/OTHER PUBLIC MEETING DATESThe Board meeting minutes 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 become final only after a formal written ballot to issue a final standard.
|March 23, 2016||Board Meeting—Transition Methods and Disclosures and Deferred Acquisition Costs|
|February 24, 2016||Board Meeting—Presentation and Disclosure|
|November 19, 2015||Board Meeting—Assumption Update Frequency and Accounting for Market Risk Benefits|
|October 28, 2015||Board Meeting—Accounting for Participating Life Insurance Contracts|
|September 16, 2015||Board Meeting—Accounting for Certain Benefit Guarantees in Nontraditional Contracts and Participating Life Insurance Contracts|
|July 24, 2015||Board Meeting—Assumption Update Methods|
|May 21, 2015||Educational Board Meeting—Methods for Calculating and Recording the Effect of Assumption Updates|
|February 18, 2015||Board Meeting—Amortization of Deferred Acquisition Costs|
|November 19, 2014||Board Meeting—Discount Rate|
|August 27, 2014||Board Meeting—Assumptions, Discount Rate, Premium Deficiency, and Loss Recognition|
|April 16, 2014||Board Meeting—Scope and Project Direction|
|February 19, 2014||Board Meeting—Scope and Project Direction|
BACKGROUND INFORMATIONIn August 2007, the Board issued an Invitation to Comment, An FASB Agenda Proposal: Accounting for Insurance Contracts by Insurers and Policyholders, which included the IASB’s May 2007 Discussion Paper, Preliminary Views on Insurance Contracts. The Boards’ objective in undertaking the proposed project was to develop a common, high-quality standard that addresses recognition, measurement, presentation, and disclosure requirements for insurance contracts. The Board received 45 comment letters in response to the Invitation to Comment, which led to its decision in October 2008 to participate in the project jointly with the IASB. The Boards held more than 50 meetings to discuss various proposals to develop a common standard for insurance contracts. While the Boards reached common decisions in many areas, they reached different conclusions in others. On June 27, 2013, the Board issued a proposed Accounting Standards Update, Insurance Contracts (Topic 834). Details of the Board’s deliberations with the IASB and feedback received on the 2013 proposed Update can be found on the page Insurance Contracts—Joint Project of the FASB and IASB.
In light of the feedback received on the 2013 proposed Update, the Board decided to limit the scope to insurance entities as described in existing generally accepted accounting principles (GAAP). The Board also decided that the project should focus on making targeted improvements to existing GAAP. For short-duration contracts, the Board decided to limit the targeted improvements to enhancing disclosures.
Senior Project Manager
Assistant Project Manager
Postgraduate Technical Assistant
Postgraduate Technical Assistant