Under the ASU, insurance entities with short-duration insurance contracts must annually provide the following disclosures:
- ”Incurred and paid claims [and allocated claim adjustment expense] development information by accident year, on a net basis after risk mitigation through reinsurance, for the number of years for which claims incurred typically remain outstanding (that need not exceed 10 years, including the most recent reporting period presented in the statement of financial position). Each period presented in the disclosure about claims development that precedes the current reporting period is considered to be supplementary information.” For the most recent reporting period presented, an insurer also must disclose the total net outstanding claims for all accident years before those presented in the claims development tables (i.e., collectively, for those accident years not separately presented in the development tables).
- A reconciliation of the claims development disclosures to the aggregate carrying amount of the liability for unpaid claims and CAEs, with separate disclosure of reinsurance recoverable on unpaid claims.
- For each accident year presented in the claims development tables, disaggregated information about (1) claim frequency (unless impracticable) and (2) the amounts of incurred-but-not-reported (IBNR) liabilities plus the expected development on reported claims.
- A description of the methods for determining (1) both IBNR and expected development on reported claims and (2) cumulative claim frequency, and any significant changes to those methods.
- For all claims except health insurance claims, the historical average annual percentage payout of incurred claims by age, net of reinsurance, for those accident years presented in the claims development tables.
- Information about any significant changes in methods and assumptions used in the computation of the liability for unpaid claims and CAEs, including reasons for the changes and the impact of the changes on the most recent reporting period in the financial statements.
- The carrying amounts of liabilities for unpaid claims and CAEs that are presented at present value and the effects of the discounting, including (1) the aggregate discount deducted from the liabilities, (2) the amount of interest accretion recognized during each period, and (3) the line item(s) in the statement of comprehensive income in which the interest accretion is classified.
In addition, insurance entities must disclose the following in both interim and annual periods:
- The rollforward of the liability for unpaid claims and CAEs.
- Total IBNR liabilities, plus expected development on reported claims, included in the liability for unpaid claims and CAEs for health insurance claims, either as a separate disclosure or as a component of the disclosure of the rollforward of the liability, at an appropriate level of disaggregation
The ASU is effective for public business entities for annual periods beginning on or after December 31, 2015, and interim periods within annual reporting periods beginning after December 15, 2016. The effective date is deferred by one year for all other entities. Early application is permitted.
For more information, see the press release, ASU, FASB in Focus newsletter, and Understanding Costs and Benefits document on the FASB’s Web site.