The Financial Accounting Standards Board has issued a proposed accounting standards update for improving the financial reporting for long-term insurance contracts, including life insurance, disability income, long-term care and annuities.

The exposure draft for the new standard includes proposals for improving the timeliness of recognizing changes in the liability for future policy benefits by requiring updated assumptions be used to measure the liability.

The new standard would also eliminate the use of an asset rate (that is, an insurance company’s expected investment yield) to discount liability cash flows. Instead it would require cash flows to be discounted at a high-quality fixed-income instrument yield.

In addition the proposal would simplify the accounting for certain options or guarantees in variable products (such as guaranteed minimum death, accumulation, income and withdrawal benefits) by requiring those benefits to be measured at fair value instead of using two different measurement models.

The proposed accounting standards update would also simplify the amortization of deferred acquisition costs, while aiming to improve the disclosure effectiveness.

“During outreach on our project to consider potential improvements to the insurance accounting model, stakeholders identified specific areas of financial reporting related to long-duration contracts that could be improved,” said FASB Chairman Russell G. Golden in a statement. “Based on that feedback, the board developed the proposed ASU, which sets forth recommended, targeted improvements to enhance the quality of information provided to investors about these contracts.”

FASB worked for years with the International Accounting Standards Board on improving insurance contract accounting as part of their decade-long convergence program. International Financial Reporting Standards remained considerably behind U.S. GAAP in having standards in place for insurance accounting. However, the two boards could not reach common ground on the standards, and the two boards released separate proposals in 2013 (see FASB Proposes Major Changes in Insurance Accounting and IASB Revises Proposals for Insurance Accounting). FASB and the IASB eventually decided to go their separate ways in 2014 on insurance accounting, with FASB deciding to make more limited changes to its existing standards (see FASB Votes to Limit Insurance Accounting Changes.) IASB chairman Hans Hoogervorst said earlier this month the board plans to release its final insurance standard in early 2017. It has an interim standard in place known as IFRS 4 for insurance contracts.

FASB is asking stakeholders to review and provide comments on the proposed update by Dec. 15, 2016. The board also plans to hold public roundtable meetings in the first quarter of next year. Those interested in participating are asked to submit written comments first.

FASB plans to decide on an effective date for the accounting standards update after it redeliberates on the comments it receives during the comment period and from the public roundtable meetings.

More information about the proposed update—including a FASB in Focus overview document—is available at

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