The main provisions provided in this proposed ASU are the requirement for an entity to measure its insurance contracts under either the ‘building block’ approach or the ‘premium allocation’ approach. In addition, an entity will be required to present the following in net income:

1. Insurance contract revenue:

a. For the building block approach—over the coverage and settlement periods as the obligation to provide coverage and other services is satisfied.

b. For the premium allocation approach—over the coverage period on the basis of the expected timing of incurred claims.

2. Claims and expenses as they are incurred, and for contracts measured using the building block approach, changes in assumptions regarding expected cash flows.

3. Interest expense using the discount rates determined when the contract was initially recognized. Those rates would be periodically reset for insurance contracts with discretionary participation features that change the expected cash flows.

While the IASB and FASB have made progress in bridging their differing views over the past two years of deliberations, the proposals are distinct documents and the boards’ proposed accounting models are not fully converged. Unlike the IASB’s ED, the proposed ASU seeks constituents’ views on all aspects of the proposed accounting model for insurance contracts.

The proposed ASU has a comment deadline of 25 October 2013.

For more information, see the Deloitte (United States) Heads Up on this topic. Also, click for (links to FASB website):

• Proposed Accounting Standards Update—Insurance Contracts (Topic 834)
• FASB press release
• FASB in Focus — General Overview
• FASB in Focus — Scope Overview