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Journal entry — Insurance project — FASB continues deliberating short-duration insurance contract disclosures and tentatively decides not to address reinsurance accounting issues

Published on: Jul 18, 2014

At its July 16 meeting, the FASB tentatively decided, on the basis of staff outreach, not to include any reinsurance accounting issues within the scope of its insurance project. In addition, the Board continued deliberating the disclosures that should be required for short-duration insurance contracts. In particular, the Board discussed the claims development tables and qualitative disclosures of the methods and assumptions that an entity used in determining the liability for unpaid claims and claim adjustment expenses. Specifically, the FASB tentatively decided that:

  • Insurance entities that issue short-duration insurance contracts (including health insurance entities) would provide disaggregated incurred- and paid-loss development tables that disclose, at a minimum, activity from (1) the earliest period for which uncertainty arose about the amount and timing of claims payments through (2) the most recent year presented in the financial statements. However, the period for which the tabular information is disclosed need not exceed 10 years. Management should determine the number of years on the basis of its judgment regarding when “substantially all” of the claims uncertainty is resolved for each accident year. In addition, entities would be required to reconcile the information in the tables to the liability for unpaid claims and claim adjustment expenses recognized in the statement of financial position. To do so, an entity may need to include total balances for activity associated with years preceding those presented in the development tables; such reconciling information should be presented at the same level of disaggregation as the other information presented in the tables.
  • Entities must disclose annually (1) the methods and assumptions used in determining the liability for unpaid claims and claim adjustment expenses and (2) the reasons for any material changes in judgments used in the computation of the liability for unpaid claims and claim adjustment expenses (e.g., a change in assumptions). However, entities still would need to disclose any material changes that occur during an interim period (such as a change in method) to comply with existing interim reporting requirements.
  • Except for health insurance entities, insurance entities would be required to disclose the percentage payout of claims by accident year.

The Board also discussed the mixed feedback it received from regulators, auditors, and preparers regarding audit concerns about its proposal to include 10-year claim development tables in the audited notes to the financial statements. Concerns raised included the extent of required audit procedures and successor and predecessor auditor issues. Consequently, the Board redeliberated (1) whether the claims development tables should be included in the notes to the financial statements or as supplemental schedules and (2) what amounts, if any, would be subject to audit procedures. The Board made no tentative decisions on the audit considerations discussed and instead directed the staff to perform additional outreach with audit regulators.

Next Steps

The FASB plans to continue to discuss these issues at a future meeting. At that time, it will decide whether to finalize its decisions or expose some or all of them for public comment.

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