Defining Issues | August 2018
FASB changes long-duration insurance accounting model
KPMG reports on ASU 2018-12, which changes how insurance entities recognize, measure, present and disclose long-duration contacts. Insurance entities should begin analyzing the implications of the standard throughout their organization.
Applicability
- Insurance entities within the scope of US GAAP that issue long-duration contracts
- Not applicable to policyholders of long-duration contracts
- Not applicable to non-insurance entities
Relevant dates
Mandatory effective dates and early adoption provisions:
Effective date:
Annual periods – Fiscal years beginning after
Interim periods – In fiscal years beginning after
Public business entities
December 15, 2020
December 15, 2020
All other entities
December 15, 2022
December 15, 2022
Early adoption allowed? Yes.
Key impacts
- Review the liability for future policy benefits cash flow assumptions for nonparticipating traditional long-duration and limited-payment contracts at the same time every year, and update if there is a change, unless experience suggests more frequent updates. Use an upper-medium grade (low-credit risk) fixed-income instrument yield for the discount rate and update each reporting period
- Measure all market risk benefits at fair value
- Amortize deferred acquisition costs on a constant level basis over the expected term of the related contracts
- Improve the disclosures for liability for future policy benefits, policyholder account balances, market risk benefits, deferred acquisition costs, and separate account assets and liabilities
Report contents
- Key facts
- Liability for future policy benefits
- Market risk benefits
- DAC amortization
- Enhanced disclosure requirements
- Effective dates and transition