The proposal would amend the accounting and disclosure model for long-duration insurance contracts under US GAAP. The FASB believes that the proposal would improve the following aspects of the financial reporting for such contracts:

• Measurement of the liability for future policy benefits,
• Market risk benefits,
• Deferred acquisition costs, and
• Disclosures.

Specifically, the proposal aims to:

• “Improve the timeliness of recognizing changes in the liability for future policy benefits by requiring that updated assumptions be used to measure the liability for future policy benefits (that is, that assumptions be ‘unlocked’) and modify the rate used to discount future cash flows.”
• “Simplify and improve the accounting for certain options or guarantees embedded in variable contracts.”
• “Simplify the amortization of deferred acquisition costs.”
• “Improve the effectiveness of the required disclosures.”

These objectives are similar to the IASB's objectives in developing a new insurance contracts standard where one of the main changes also relates to the treatment of long-duration contracts. Paragraphs BC87-BC89 of the proposed ASU explains the treatment of insurance contracts under IFRSs. Issuance of IFRS 17 Insurance Contracts is currently expected in March 2017.

Comments on the proposed ASU are due by 15 December 2016. For more information, see the press release, proposed ASU, and FASB in Focus newsletter on the FASB’s website.