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Journal entry — FASB tentatively decides on required disclosures for short-duration insurance contracts

Published on: Jun 06, 2014

At its June 4 meeting, the FASB tentatively decided to require entities to disclose the following information about short-duration insurance contracts:

  • Incurred- and paid-loss development tables for the most recent 10 years (showing amounts net of reinsurance), at an appropriate level of disaggregation, that include a reconciliation to the liability for unpaid claims and claim adjustment expenses recognized in the statement of financial position. An entity also would need to disclose ceded reinsurance at the same level of disaggregation. The final ASU also would provide implementation guidance on this topic.
  • Disaggregated information about the frequency of incurred claims, including information about the amounts of incurred-but-not-reported liabilities that are included in the incurred-claims development tables.
  • Information about claims duration, including the percentage payout of claims for each of the 10 most recent accident years.
  • The nature and amount of, and the reasons for, any material change in an existing liability for unpaid claims and claims adjustment expenses that is due to a change in estimation method, assumptions, or inputs.
  • For liabilities of unpaid claims and claims adjustment expenses that are discounted, the effects of the discounting, including the amount of interest recognized during the period and the financial statement line item(s) in which the interest accretion is classified.

In addition, the Board debated whether an entity should include health insurance contracts in the net incurred- and paid-loss development tables since entities are currently not required to provide such disclosures under statutory reporting for these contracts (unlike those for property and casualty insurance contracts). The Board tentatively decided to require entities to include health insurance contracts, like all other short-duration contracts, in the development tables.

The Board also tentatively decided that:

  • Generally, an entity would have to provide these disclosures only annually; however, the entity would need to disclose in its interim financial statements the nature and amount of, and the reasons for, any material change in its existing liability for unpaid claims and claims adjustment expenses that is due to a change in estimation method, assumptions, or inputs. Also, entities would need to provide, in both interim and annual periods, rollforward disclosures related to the liability for unpaid claims and claims adjustment expenses, as required by ASC 944-40-50-3.1
  • Nonpublic entities would provide the same disclosures as public entities.

Furthermore, the Board tentatively decided not to require any additional disclosures about (1) an insurance entity’s premium deficiency analysis and (2) the hypothetical discount rates for the liabilities for unpaid claims and claim adjustment expenses that are not discounted.

Transition

The Board tentatively decided that an entity should apply the new disclosure requirements retrospectively by providing comparative disclosures for each prior period presented, with two exceptions. First, because the claims development tables depict cumulative experience, there would be no need to provide comparative tables; however, those tables would need to provide information for at least the past five years (i.e., an entity still would need to provide the claims development tables upon adoption, but those tables would not have to depict activity that occurred earlier than five years before the end of the year of adoption). Second, an entity would prospectively apply the requirement to disclose the nature and amount of, and the reasons for, a material change in the entity’s existing liability for unpaid claims and claims adjustment expenses that is due to a change in estimation method, assumptions, or inputs.

The Board also tentatively decided not to require the transition disclosures in ASC 250-10.

Next Steps

The FASB deferred consideration of whether to expose a proposed ASU related to these tentative decisions, pending additional staff outreach on the tentative disclosure requirements with auditors, writers of short-duration health insurance contracts, and preparers and users of financial statements.

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1 For titles of FASB Accounting Standards Codification (ASC) references, see Deloitte’s “Titles of Topics and Subtopics in the FASB Accounting Standards Codification.”

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