FASB/IASB Continue Insurance Contracts Reporting Project

By Frank Byrt

The International Accounting Standards Board (IASB) continues its work with the Financial Accounting Standards Board (FASB) to develop an accounting standard for insurance contracts reporting that would improve on current US Generally Accepted Accounting Principles (GAAP) and coincide with International Financial Reporting Standards (IFRS). 
 
The objective of the project "is to develop common, high-quality guidance that will address recognition, measurement, presentation, and disclosure requirements for insurance contracts (including reinsurance), even if the contracts are not issued by an insurance entity," according to a February 1 update on the project posted on the FASB website. "Specifically, the project is intended to improve, simplify, and converge the financial reporting requirements for insurance contracts and to provide investors with decision-useful information." 
 
Insurers currently use a variety of approaches to measure the value of insurance contracts for financial statement reporting purposes, which could make it difficult to compare companies on the same basis and determine the value of an insurance business from an investors' perspective.
 
At their most recent meeting January 30, FASB and IASB focused on two issues: the presentation of insurance contract revenue when there are changes in the pattern of expected claims, and transition proposals for insurance contract revenue recognition.
 
FASB and IASB tentatively decided that under the building-block approach, insurance contracts revenue projections should be updated and reallocated on a prospective basis if there is a change in the expected pattern of future claims in order to reflect the latest estimates of that pattern.
 
In a discussion regarding the transition proposals for insurance contract revenue, FASB tentatively decided that "for contracts accounted for under the building-block approach that are in force at transition, the amount of the revenue to be recognized after transition should be determined as follows:
  • "For contracts for which the margin is determined through retrospective application, the insurance contact revenue remaining to be earned as of the date of transition should be determined retrospectively by using the assumptions applied in the retrospective determination of the margin.
  • For contracts for which retrospective application is not practicable to determine the margin because it would require significant estimates that are not based solely on objective information, the insurance contract revenue remaining to be earned should be presumed to equal the amount of the liability for remaining coverage (excluding any investment components) recorded at the date of transition (plus accretion of interest)."
The IASB tentatively decided separately "that on transition, an insurer should estimate the amount of revenue to be recognized in future periods by estimating the residual margin or initial loss included in the liability for remaining coverage. In estimating that residual margin or loss, an insurer should assume that the risk adjustment at inception is assumed to equal the risk adjustment on transition," according to the FASB update of February 1.
 
"In addition, the IASB decided that when retrospective application is not practicable, an insurer should estimate the residual margin by maximizing the use of objective data. In other words, an insurer should not calibrate the residual margin to the insurance liability as it was measured using previous GAAP," the FASB posting said.
 
Related article:
 

You may like these other stories...

AgFeed agrees to pay $18 million to settle SEC accounting fraud caseMichael Rapoport of the Wall Street Journal reported on Monday that AgFeed Industries Inc. has agreed to pay $18 million to settle US Securities and...
Hertz and Icahn make peaceThere won’t be any nasty, protracted proxy battle between Hertz Global Holdings and activist investor Carl Icahn. The rental car chain agreed last Thursday to give Icahn – who has...
Following other recent high-profile hacking events, investigators discovered yesterday that hackers broke into the draft work paper files of several famous CPA firms. Revealing images of the scantily clad documents have been...

Already a member? log in here.

Upcoming CPE Webinars

Sep 18
In this course, Amber Setter will shine the light on different types of leadership behavior- an integral part of everyone's career.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.