Market Overview

FASB Improves Accounting Guidance for Insurance Companies That Issue Long-Duration Contracts


The Financial Accounting Standards Board (FASB)
today issued an Accounting Standards Update (ASU)
that improves financial reporting for insurance companies that issue
long-duration contracts, such as life insurance, disability income,
long-term care, and annuities.

"The new ASU provides investors and other financial statement users with
better and more timely and transparent information about long-term
contracts issued by insurance companies," stated FASB Chairman Russell
G. Golden
. "Featuring targeted improvements to the current reporting
model for these contracts, it reflects the input we received from
diverse insurance industry stakeholders over more than 10 years of
extensive outreach."

That outreach included more than 150 meetings with users and more than
250 meetings with preparers, auditors, industry groups, and others; 13
group meetings with 60 users; 14 conferences with more than 150 users;
more than 450 comment letters from users, preparers, auditors, industry
groups, and others; 13 public roundtables hosted or attended by the
Board or staff; and numerous additional discussions.

To improve this area of financial reporting, the new ASU:

  1. Requires updated assumptions for liability measurement. Assumptions
    used to measure the liability for traditional insurance contracts,
    which are typically determined at contract inception, will now be
    reviewed—and, if there is a change, updated—at least annually, with
    the effect recorded in net income.
  2. Standardizes the liability discount rate. The liability
    discount rate will be a standardized, market-observable discount rate
    (upper-medium grade fixed-income instrument yield), with the effect of
    rate changes recorded in other comprehensive income.
  3. Provides greater consistency in measurement of market risk
    The two previous measurement models have been reduced to
    one measurement model (fair value), resulting in greater uniformity
    across similar market-based benefits and better alignment with the
    fair value measurement of derivatives used to hedge capital market
  4. Simplifies amortization of deferred acquisition costs. Previous
    earnings-based amortization methods have been replaced with a more
    level amortization basis.
  5. Requires enhanced disclosures. They include rollforwards and
    information about significant assumptions and the effects of changes
    in those assumptions.

For calendar-year public companies, the changes will be effective in
2021. For all other calendar-year companies, the changes will be
effective in 2022. Early adoption is permitted.

The ASU,
as well as a FASB
in Focus
overview, an Understanding
Costs and Benefits
document, and an educational
, is available at

About the Financial Accounting Standards Board

Established in 1973, the FASB is the independent, private-sector
organization, based in Norwalk, Connecticut, that establishes financial
accounting and reporting standards for public and private companies and
not-for-profit organizations that follow Generally Accepted Accounting
Principles (GAAP). The FASB is recognized by the Securities and Exchange
Commission as the designated accounting standard setter for public
companies. FASB standards are recognized as authoritative by many other
organizations, including state Boards of Accountancy and the American
Institute of CPAs (AICPA). The FASB develops and issues financial
accounting standards through a transparent and inclusive process
intended to promote financial reporting that provides useful information
to investors and others who use financial reports. The Financial
Accounting Foundation (FAF) supports and oversees the FASB. For more
information, visit

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