FASB Votes to Repropose Rules for Life Insurance Contracts

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By Denise Lugo

March 23 — The Financial Accounting Standards Board voted to reissue an exposure draft that will provide targeted revisions to the accounting for life insurance contracts.

“A lot of board members observed it would be beneficial to proceed to an exposure document with questions,” FASB Chairman Russell Golden said during the March 23 meeting.

Following the drafting of an exposure document, staff accountants would submit it to an external review and bring back any additional miscellaneous issues and a cost analysis of the revisions, Golden said.

FASB members must still discuss when the proposal will be issued, the length of a comment period and their general reasons for reproposing their decisions. The board also still must determine an effective date for the guidance before a final standard is issued.

Opportunity to Fully Assess Impacts

The board's decision means companies that issue life insurance contracts—like Aetna, Cigna, United Health Group, Northwestern Mutual, Liberty and others—will have another opportunity to provide feedback on the board's tentative decisions before they are finalized.

So far, one insurance trade group, the American Council of Life Insurers, in a March 9 letter to FASB expressed hope that the board would repropose its decisions so practitioners can fully assess the potential impact they would have on insurance companies' financial results.

For FASB, it will be its third public comment document on the topic—but this time of a narrower nature. In 2010 the board issued a discussion pape, and followed that in 2013 with an exposure document, Insurance Contracts , that would have overhauled the rules for both property and casualty and life insurance contracts.

Unlike those two prior documents, this third exposure draft will focus only on long-duration insurance contracts—traditional, participating and limited-payment contracts—in targeted areas. Some key changes FASB is expected to propose include its decisions related to assumption updates, amortization of deferred acquisition costs (DAC) and accounting for market risk benefits.


The bulk of FASB's March 23 meeting focused on transition methods and disclosures for the liability for future policy benefits and market risk benefits, as well as DAC.

FASB agreed on an approach whereby a company would first try to retrospectively apply the guidance from contract inception using actual information.

If the company doesn't have all of the actual information available, it must evaluate whether it has other objective information that's available—internal or external—to make a reasonable estimate, according to the discussions. If that information isn't available, the company would go to the earliest period presented.

In transitioning rules for DAC, a company would apply the guidance on a prospective basis as of the beginning of the earliest period presented, the board agreed. A company would “take whatever happens to be” in other comprehensive income—“it could be a debit or a credit—offset it or add it to the DAC balance as of the transition date and then go prospective and amortize,” FASB member Marc Siegel clarified during the meeting.

Transition Disclosures

The board agreed to require related transition disclosures. In addition, a company must also disclose—if retrospective application is impractical —the portion of the liability for future policy benefits that is subject to prospective application.

Furthermore, companies would provide qualitative and quantitative information about adverse development resulting in a transition adjustment on:

  • a net premium ratio exceeding 100 percent; or
  • the establishment of an additional liability for a nontraditional contract.

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

    To contact the editor responsible for this story: Laura Tieger Salisbury at lsalisbury@bna.com

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