On February 19, 2014 the Financial Accounting Standards Board (FASB) announced it would abandon its rewrite of existing US GAAP through the Insurance Contracts Exposure Draft and instead focus on targeted improvements to the existing standards for long-duration contracts and targeted disclosure enhancements for short-duration contracts. On April 16, 2014 the FASB began its discussions on those improvements and disclosures that should be included in the scope of this project.
The FASB decided that the following more significant items for long-duration contracts should be included in the project scope for further consideration.
Liability for future policy benefits
- Locking and unlocking of assumptions and the frequency with which they should be updated if unlocked and where the effects of the unlocking are recognized in the financial statements
- What discount rate should be used in the determination of the measurement of the liability for future policy benefits and disclosure surrounding the determination of the discount rate
- Whether the liability for future policy benefits should include a provision for adverse deviation
Policy acquisition costs
- The method of amortization of policy acquisition costs and if gross profits are used to estimate the amount of amortization, if adjustments should be retrospective or prospective and disclosure of the determination thereof
- Disclosure of a roll forward of the balance of policy acquisition costs
Premium deficiency reserve
- Whether there should be clarification of the level of aggregation used when performing a premium deficiency reserve analysis and
- Disclosures including current loss recognition margin, level of aggregation, assumptions used and the amount of premium deficiency recorded during the period
For short-duration contracts, the board concluded the following potential disclosure requirements should be in the project scope for future consideration as well as consideration of whether each should be for annual or for interim and annual reporting:
- Incurred and paid loss development tables
- Claim reserve duration in time bands
- Information about the frequency and severity of claims
- Qualitative and quantitative information about claims estimates
- Information about premium deficiency testing
- If a reporting entity discounts the liability for unpaid claims and claim adjustment expenses, the effects of discounting.
The Board also asked the FASB team to gather data regarding costs of compliance and auditing the above disclosures and to analyze whether management should disclose a hypothetical discount rate for claims liabilities not discounted.
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