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Journal entry — Insurance project — FASB confirms decisions about short-duration insurance contract disclosures and moves closer to project completion

Published on: Aug 14, 2014

At its meeting yesterday, the FASB confirmed previous decisions related to short-duration insurance contract disclosures and voted to proceed to a final Accounting Standards Update (ASU); however, it will provide an extended four-week fatal-flaw review period of the staff draft of the ASU to gather feedback on the operability of the proposed disclosures. The Board will consider the feedback at a future meeting before taking a final vote on the ASU.

The FASB will begin its discussions of long-duration insurance contracts at a later date.

At yesterday’s meeting, the Board tentatively decided to confirm that:

  • Disclosures about claims liabilities, including claims development, claims frequency, amounts that are incurred but not reported (IBNR), and claims duration, should be presented in the financial statement footnotes. An entity should disclose information for the number of years it expects incurred claims to remain outstanding, but the disclosure period need not exceed 10 years.
  • Disclosures about IBNR liabilities included in the liability for unpaid claims and claim adjustment expenses for health insurance claims should be provided in both interim and annual financial statements (i.e., as is required for other short-duration contracts). This disclosure can be shown either separately or as a component of the rollforward of the liability for unpaid claims and claim adjustment expenses.
  • Interim and annual disclosure of the rollforward of the liability for unpaid claims and claim adjustment expenses for health insurance claims should be disaggregated in a manner similar to other short-duration contracts.

The Board debated whether to issue a revised exposure draft for all or some of the proposed disclosures, particularly in light of certain audit concerns (e.g., potential independence issues) about including up to 10 years of claims information in the financial statement footnotes. However, the Board ultimately decided that reexposure was not necessary. 

Editor’s Note: In a previous meeting, the Board discussed the possible alternative of designating the 10-year claims development tables as supplemental schedules. In response to FASB staff outreach, regulators indicated that required supplemental schedules still would need to be audited in their entirety unless regulators granted an exception. Accordingly, the staff did not view supplemental schedules as a meaningful alternative to requiring such disclosure in the financial statement footnotes. However, as part of the fatal-flaw process, the Board is likely to seek feedback on whether such a presentation would be preferable.

In addition, the Board tentatively decided that public business entities should provide the disclosures for annual reporting periods beginning after December 15, 2014, and interim reporting periods within annual reporting periods beginning after December 15, 2015. There would be a one-year delay for all other entities. Further, the Board tentatively decided to permit early adoption.

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