FASB Indicates It Will Repropose Insurance Contracts Plan

By Denise Lugo

Feb. 24 — The Financial Accounting Standards Board indicated it will repropose its decisions about life insurance contracts to solicit comment about the need for disclosure of liability for future policy benefits, and other issues.

During Feb. 24 board discussions about potential annual and interim disclosures about the liability for future policy benefits, FASB Vice Chairman James Kroeker said another exposure draft for long-term insurance contracts “seems likely.”

FASB has been redeliberating targeted decisions about long-term insurance contracts, which were proposed under its 2013 exposure document, Insurance Contracts (Topic 834) .

A question should be posed in an exposure document related to interim disclosure requirements for the liability for future policy benefits, said Kroeker. “It's core to the business—this type of disclosure—but I'm thinking about, ‘should the interim philosophy of this package rely more on where there is a material change from annual' or should it be prescriptive,” he said.

A question should also be included related to how different investors' analysis would be if they received the information only annually versus quarterly, another board member, Harold Schroeder, said. “Because I really do think that it would change modeling how they think about these companies,” he said.

The board didn't vote on whether or not to re-expose the proposal, nor was it a topic slated for its discussion Feb. 24. A vote about whether to issue an exposure draft will likely take place after the board has completed its redeliberations, according to its standard due process.

Disclosure Package

FASB's Feb. 24 discussions focused primarily on a disclosure package for long term contracts. The board unanimously agreed to a robust package of disclosures—as suggested by its staff accountants in a board handout—about what companies should provide for the following issues:

  • liability for future policy benefits;
  • policyholder account balances;
  • market risk benefits;
  • separate account liabilities; and
  • deferred acquisition costs. 

    Presenting Market Risk Benefits

    A separate presentation issue was also discussed related to market risk benefits—certain benefits such as guaranteed minimum income, accumulation, withdrawal, or death benefits embedded in nontraditional contracts.

    The board voted to require companies to separately present the liability for market risk benefits on the statement of financial position, because such benefits would be required to follow a fair value model.

    Fair value changes related to these contracts should also be presented separately in the statement of operations, the board also agreed. “I think these are valued differently from other insurance liabilities and therefore warrant separate presentation where material,” FASB member Marc Siegel said.


    Should FASB decide to re-expose its views, it would be its third public document on the topic. In 2010, FASB issued a discussion paper, Preliminary Views on Insurance contracts , for public feedback to see if there was enough appetite among its stakeholders for a converged global standard. The board then started joint deliberations with the International Accounting Standards Board with a goal to develop a single converged accounting standard for insurance contracts. Ultimately, plans for convergence didn't pan out.

    In 2013 FASB issued its exposure draft, but decided to part ways with IASB on the project after significant push back from U.S. companies. The board's constituents said current U.S. generally accepted accounting principles (GAAP), particularly those for short-term contracts, aren't defective and therefore a significant overhaul of the rules wasn't necessary.

    FASB therefore decided to split the project and work on it in phases: phase 1—disclosures only for short-term insurance contracts; and phase 2—targeted revisions only for long-term insurance contracts.

    In May 2015 FASB issued the new disclosure rules for short duration contacts. Its discussions on long-term contracts are almost completed. Its next discussion will focus on transition.

    To contact the reporter on this story: Denise Lugo in Norwalk, Conn., at dlugo@bna.com

    To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

    For More Information

    For a copy of the board handout, which includes details about the disclosure requirements go tohttp://src.bna.com/cPY.