FASB proposes adjustments in insurance coverage normal transition guidelines

The Monetary Accounting Requirements Board is contemplating adjustments within the transition necessities for its long-duration insurance coverage normal.

FASB issued a proposed accounting requirements replace Thursday to amend the transition steerage in Accounting Requirements Replace No. 2018-12, “Monetary Providers — Insurance coverage (Subject 944): Focused Enhancements to the Accounting for Lengthy-Period Contracts,” for contracts which were derecognized due to a sale or disposal of particular person or a bunch of contracts or authorized entities earlier than the efficient date. 

The board initially issued the 2018 normal in an effort to enhance and simplify the monetary reporting necessities for long-duration insurance coverage contracts, similar to life insurance coverage. The insurance coverage normal was initially a part of the convergence effort between FASB and the Worldwide Accounting Requirements Board as a result of U.S. GAAP was seen as having extra detailed guidelines about accounting for insurance coverage than Worldwide Monetary Reporting Requirements, however the two boards ultimately went their separate methods and FASB determined to concentrate on altering its requirements just for long-duration insurance coverage contracts. 

The amendments in Replace 2018-12 require an insurance coverage firm to use a retrospective transition technique as of the start of the earliest interval offered, or the start of the prior fiscal yr if early software is elected.

Some stakeholders have informed FASB that making use of the LDTI steerage to contracts which were derecognized due to a sale or disposal of particular person or a bunch of contracts or authorized entities earlier than the LDTI efficient date in all probability wouldn’t present sufficient helpful data to buyers and will result in vital operability challenges for insurance coverage entities to use the steerage. With out an modification to the transition steerage, an insurance coverage enterprise would want to reclassify a part of the beforehand acknowledged good points or losses to the LDTI transition adjustment because of the adoption of a brand new accounting normal.

To cope with these points, the proposed replace would amend the LDTI transition steerage to allow an insurance coverage entity to make an accounting coverage election to exclude sure contracts or authorized entities from making use of the LDTI steerage once they have been derecognized due to a sale or disposal earlier than the LDTI efficient date and since the insurance coverage entity has no persevering with involvement with the derecognized contracts.

FASB is asking for feedback on the proposed replace by Aug. 8.

Individually, throughout a gathering Wednesday, FASB’s board members voted to draft one other proposed accounting requirements replace for amortizing sure tax credit, similar to for renewable power. The proposal got here from the Rising Points Job Power and would permit a proportional amortization technique on a tax-credit-program-by-tax-credit-program foundation. The existence of refundable tax credit wouldn’t mechanically preclude an investor from making use of a proportional amortization technique.