Defining Issues | October 2017
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
- 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
Related content
Issues & Trends: Proposed ASU – Targeted improvements for long-duration insurance contracts