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.


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

Related content

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



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