Insurance—Targeted Improvements to the Accounting for Long-Duration Contracts
Last updated on August 9, 2017. 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.
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 improve, simplify, and enhance the financial reporting requirements for long-duration contracts issued by insurance entities, thus providing financial statement users with more decision-useful information about the amount, timing and uncertainty of cash flows related to long-duration contracts.
DUE PROCESS DOCUMENTSThe FASB issued a proposed Accounting Standards Update, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, on September 29, 2016. The due date for comment letters ended on December 15, 2016.
- Download the September 29, 2016 proposed Accounting Standards Update, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.
- Read the FASB in Focus which summarizes the proposed Accounting Standards Update.
- Read the press release on the proposed Accounting Standards Update.
- Read comment letters on the proposed Accounting Standards Update.
- Read a feedback summary on the proposed Accounting Standards Update.
*DECISIONS REACHED AT LAST MEETING (August 2, 2017)Assumption Updating
- Measurement assumptions should be updated. An insurance entity may elect to not update the expense assumption.
- Cash flow assumptions should be reviewed (and, if there is a change, updated) on an annual basis at the same time every year, or more frequently in interim reporting periods, if evidence suggests that earlier cash flow assumptions should be revised.
- The discount rate assumption should be updated at each reporting date.
- Contracts from different issue years should not be grouped but contracts issued within a single issue year may be grouped when determining the level of aggregation for liability measurement.
- For nonparticipating traditional and limited-payment contracts, the provision for risk of adverse deviation and premium deficiency tests should be eliminated and the net premium ratio should be capped at 100 percent. For universal life-type contracts, loss recognition testing should be retained.
- The effect of updating cash flow assumptions should be calculated and recorded on a catch-up basis in net income.
- Future cash flows should be discounted using a current upper-medium grade (low credit risk) fixed-income instrument yield.
- The effect of updating the discount rate assumption should be recognized immediately in other comprehensive income.
- An insurance entity would apply the proposed amendments to all contracts in force on the basis of their existing carrying amounts at the transition date and updated future assumptions, adjusted for the removal of any related amounts in accumulated other comprehensive income.
- An insurance entity would have the option to apply the proposed amendments retrospectively (with a cumulative catch-up adjustment to the opening balance of retained earnings) using actual historical experience information as of contract inception. The option would be elected at the issue-year contract aggregation level and applied to all contract groups for that issue year and all subsequent issue years.
*TENTATIVE BOARD DECISIONS REACHED TO DATE (AS OF AUGUST 2, 2017)Please refer to the Tentative Board Decisions reached after the September 29 issuance of the proposed Accounting Standards Update, Financial Services–Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.
*NEXT STEPSThe following topics will be discussed at future Board meetings:
- Participating insurance contracts (that is, assumptions used to measure the liability)
- Measurement of market risk benefits
- Amortization of deferred acquisition costs
- Presentation and disclosures.
*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.
|*August 2, 2017||Board Meeting—Liability for Future Policy Benefits|
|April 19, 2017||Public Roundtable Meeting—Discussion of Comments Received in Response to Proposed Accounting Standards Update, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts|
|February 8, 2017||Board Meeting—Feedback Summary|
|August 31, 2016||Board Meeting—Permission to Ballot|
|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 FASB 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. The FASB issued Accounting Standards Update No. 2015-09, Financial Services—Insurance (Topic 944): Disclosures about Short-Duration Contracts, on May 21, 2015.
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