Insurance

Exposure Draft - Proposed Accounting Standards Update 2022-003 —Financial Services —Insurance (Topic 944): Transition for Sold Contracts

Insurance – FASB Discusses Proposal on Effective Date and Early Application for Insurance Standard

Exposure Draft - Proposed Accounting Standards Update 2020-400 —Financial Services —Insurance (Topic 944): Effective Date and Early Application

Insurance Accounting – FASB Discusses Insurance Accounting Implementation

Insurance Contracts – IASB Issues Amendments to IFRS 17

Insurance Entities – AICPA Seeks Feedback on Insurance Entities Working Drafts

Life and Health Insurance Entities – AICPA Publishes Working Draft of Life and Health Insurance Entities Issues

FASB Accounting Standards Updates - Accounting Standards Update No. 2019-09 —Financial Services —Insurance (Topic 944) —Effective Date

Articles

Exposure Draft - Proposed Accounting Standards Update 2022-003 —Financial Services —Insurance (Topic 944): Transition for Sold Contracts

Summary - The FASB issued proposed Accounting Standards Update (ASU), Financial Services—Insurance (Topic 944): Transition for Sold Contracts. Comments on the proposed standard are due by August 8, 2022.

The amendments in ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI), require an insurance entity to apply a retrospective transition method as of the beginning of the earliest period presented or the beginning of the prior fiscal year if early application is elected. The FASB received stakeholder feedback indicating that applying the LDTI guidance to contracts that were derecognized because of a sale or disposal of individual or a group of contracts or legal entities before the LDTI effective date likely would not provide decision-useful information to investors and other financial statement users and may result in significant operability challenges for insurance entities to apply the guidance.

As such, the FASB is issuing this proposed ASU to attempt to reduce implementation costs and complexity associated with the adoption of LDTI for contracts that have been derecognized because of a sale or disposal of individual or a group of contracts or legal entities before the LDTI effective date. Otherwise, an insurance entity would be required to reclassify a portion of the previously recognized gains or losses to the LDTI transition adjustment because of the adoption of a new accounting standard. Because there is no effect on an insurance entity’s future cash flows, such a reclassification could be misleading to financial statement users.

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Insurance – FASB Discusses Proposal on Effective Date and Early Application for Insurance Standard

Summary - As reported in its “Summary of Board Decision” publication, the FASB met on September 30, 2020, and discussed comment letter feedback received on its proposed Accounting Standards Update (ASU), Financial Services—Insurance (Topic 944): Effective Date and Early Application, and made the following two decisions.

To affirm its decision to defer the effective date of the amendments in ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, for all insurance entities by one year.
To amend the proposed early application provisions of ASU 2018-12 whereby the early application transition date would be either the beginning of the prior period or the earliest period presented.

The FASB directed its staff to draft an ASU for vote by written ballot.

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Exposure Draft - Proposed Accounting Standards Update 2020-400 —Financial Services —Insurance (Topic 944): Effective Date and Early Application

Summary - The FASB issued a proposed Accounting Standards Update (ASU) that would help insurance companies adversely affected by the COVID-19 pandemic by giving them an additional year to implement ASU No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI). However, for insurers that may not need the extra time, the proposal would make it easier and cost-effective to maintain their current timelines and early adopt LDTI. Stakeholders are asked to review and provide comment on the proposed ASU by August 24, 2020.

To facilitate early application and encourage accelerated delivery of better information to investors, the proposed ASU would allow insurance companies to restate only one previous period, rather than two, if they choose to early adopt LDTI.

The proposed ASU would permit insurance companies to delay implementation by one year as follows:

For SEC filers, excluding smaller reporting companies as defined by the SEC, LDTI would be effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.
For all other entities, LDTI would be effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025.

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Insurance Accounting – FASB Discusses Insurance Accounting Implementation

Summary - As reported in its “Summary of Board Decisions” publication, the FASB met on June 10, 2020, and discussed two agenda requests regarding the effective date of Accounting Standards Update (ASU) No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.

The FASB decided to:

Add a project to the technical agenda to amend the effective date of the amendments in ASU 2018-12.
Propose a one-year deferral of the effective date of the amendments in ASU 2018-12 for all insurance entities.
Propose a change to the early application provisions of ASU 2018-12 whereby the early application transition date would be the beginning of the prior period.

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Insurance Contracts – IASB Issues Amendments to IFRS 17

Summary - The IASB has issued amendments to IFRS 17, Insurance Contracts, aimed at helping companies implement the Standard and making it easier for them to explain their financial performance.

The fundamental principles introduced when the IASB first issued IFRS 17 in May 2017 remain unaffected. The amendments, which respond to feedback from stakeholders, are designed to:

Reduce costs by simplifying some requirements in the Standard;
Make financial performance easier to explain; and
Ease transition by deferring the effective date of the Standard to 2023 and by providing additional relief to reduce the effort required when applying IFRS 17 for the first time.

The IASB has also issued an amendment to the previous insurance contracts Standard, IFRS 4, so that eligible insurers can still apply IFRS 9, Financial Instruments, alongside IFRS 17.

The deferral of the effective date by two years, to annual reporting periods beginning on or after 1 January 2023, is intended to allow time for an orderly adoption of the amended IFRS 17 by jurisdictions around the world. This should enable more insurers to implement the new Standard at the same time.

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Insurance Entities – AICPA Seeks Feedback on Insurance Entities Working Drafts

Summary - The AICPA’s Financial Reporting Executive Committee (FinREC) has issued for public comment several working drafts of accounting issues for Insurance Entities, related to the implementation of FASB Accounting Standards Update (ASU) No. 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts.

The new FASB accounting standard on Long-Duration Contracts makes targeted improvements to the existing recognition, measurement, presentation, and disclosure requirements for long-duration contracts issued by an insurance company. FinREC and the AICPA Insurance Expert Panel will continue to develop working drafts on accounting implementation issues that have been identified for the new standard.

The working drafts for implementation of ASU 2018-12 are:

Issue #9D: Deferred acquisition costs - Considerations for determining the expected term of the contract; and
Issue #11D: Upon adoption of FASB ASU 2018-12, whether it is permissible for an entity to change its accounting policy for all products for including the cost of reinsurance in loss recognition testing.
Final issues for the project will be included in the Audit and Accounting Guide: Life and Health Insurance Entities. Comments on the proposal are due by May 15, 2020.

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Life and Health Insurance Entities – AICPA Publishes Working Draft of Life and Health Insurance Entities Issues

Summary - The AICPA’s Financial Reporting Executive Committee (FinREC) has issued four working drafts of accounting issues for insurance entities. These working drafts provide guidance on implementation of FASB Accounting Standards Update (ASU) No. 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts.The comment due date for each working draft is April 10, 2020.

When final, the text of the working drafts will be included in the Audit and Accounting Guide: Life and Health Insurance Entities.

The new working drafts for implementation of ASU 2018-12 include:

Issue #1: Claim liabilities associated with long-duration traditional insurance contracts;
Issue #4AB: Market Risk Benefits - Considerations related to transition, including the use of hindsight and clarification on the application of the fair value framework of FASB ASC 820 to the initial and subsequent measurement of market risk benefits at fair value;
Issue #8: Updating cash flow assumptions in the net premium ratio; and
Issue #9ABC: DAC [Deferred Acquisition Costs] Amortization, including (a) considerations for evaluating whether the amortization on a constant-level basis for grouped contracts approximates straight-line amortization on an individual basis, (b) interaction of the liability for future policy benefits cash flow assumption updates and DAC amortization assumption updates, and (c) updating of DAC experience as of the beginning of the period or end of the period.

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FASB Accounting Standards Updates - Accounting Standards Update No. 2019-09 —Financial Services —Insurance (Topic 944) —Effective Date

Summary - The FASB issued ASU No. 2019-09, Financial Services—Insurance (Topic 944): Effective Date, which finalizes insurance standard effective date delays for all insurance companies that issue long-duration contracts, such as life insurance and annuities. The change to the effective date is as follows:

Insurance (ASU No. 2018-12): For public business entities that meet the definition of an SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The one-time determination of whether an entity is eligible to be a smaller reporting company should be based on an entity’s most recent determination as of November 22, 2019, in accordance with SEC regulations. Early application is permitted.

For all other entities, for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early application is permitted.

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