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Heads Up newsletter on US insurance accounting

  • Heads Up Image

03 Jul 2006

Deloitte & Touche LLP (United States) has published a special edition of the (PDF 83k) summarising the recently issued FASB Invitation to Comment Bifurcation of Insurance and Reinsurance Contracts for Financial Reporting.

This project could significantly affect the accounting for certain insurance contracts in the United States. Though FASB's Invitation is not published jointly with the IASB, the IASB does have an Insurance Accounting Project on its agenda. FASB requests comments by 24 August 2006.

The Heads Up points out that some concepts discussed in the Invitation, if adopted, would have a dramatic impact on buyers and sellers of such kinds of insurance as group accident and health, fleet automobile, and umbrella policies. Effects could include:

  • Requiring the buyers (including non-insurance companies) of many types of insurance to perform extensive analyses to determine whether insurance risk has been transferred, and establish or update their systems to enable them to bifurcate (split) the 'risk' elements of the contracts from the 'financing' elements.
  • Requiring the 'financing' elements to be accounted for as deposits, even if there are no risk-limiting features to the contract. This would significantly change the income statement results, because the financing element would be treated as if that portion of the risk had been self-insured.
  • Changing the tax treatment of insurance and reinsurance contracts.

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