FASB continues discussion on targeted improvements for long-duration insurance contracts

KPMG reports on the FASB’s continued redeliberations on targeted improvements for long-duration insurance contracts. The FASB made decisions on the reserving model for participating insurance contracts, deferred acquisition costs (DAC) and market risk benefits.

Applicability

Proposed ASU on ASC 944

• Insurance entities that issue long-duration contracts
• Not applicable to policyholders of long-duration contracts
• Not applicable to non-insurance entities
  

Relevant dates

• September 29, 2016 – FASB issued exposure draft
• October 4, 2017 – FASB continues redeliberations on exposure draft

Key impacts

• retain existing guidance on the liability measurement for participating insurance contracts
• replace the DAC amortization method with a simplified principle in which DAC would be amortized on a constant basis over the expected life of the contracts with no linkage to the profit of the contracts
• use a prospective transition approach for DAC, with an option to use a retrospective transition approach
• expand the scope of market risk benefits to include general account deposit (or account balance) products
• affirm that market risk benefits should be measured at fair value with changes in fair value due to instrument-specific credit risk presented in other comprehensive income and the remaining changes presented in net income
• clarify that hindsight could be used for market risk benefit transition, and affirm that an insurance entity would apply a retrospective transition approach
  

Report contents

• Applicability
• Key facts and impacts
• Participating insurance contracts
• Deferred acquisition costs
• Market risk benefits
• Next steps

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Issues & Trends: Proposed ASU – Targeted improvements for long-duration insurance contracts