Insurance project — FASB tentatively decides on the discount rate insurers should use to measure certain long-duration insurance contract liabilities

Published on: 20 Nov 2014

At its meeting yesterday, the FASB continued discussing targeted improvements to its guidance on accounting for long-duration insurance contracts. Specifically, the Board debated what discount rate an insurer should use when measuring a contract that, under existing GAAP, is discounted by using an expected investment yield. The Board tentatively decided that the discount rate used should be "based on a portfolio of high-quality fixed-income investments."

Editor’s Note: There was some discussion at the meeting about whether AAA or AA rates should be considered “high quality.” Some Board members suggested looking to relevant current accounting literature (e.g., pension accounting) for guidance. As a next step, the FASB staff will research how “high quality” is interpreted in other areas of the Accounting Standards Codification.

At a future meeting, the FASB will (1) “consider the application of the discount rate to insurance contracts for which the liability for future policy benefits is discounted using a rate other than an expected investment yield under existing GAAP,” (2) further discuss the meaning of “high-quality fixed-income investments,” and (3) decide what other disclosures an entity should provide about its liability measurement (e.g., the discount rate and assumptions used).1

1 Quoted text is from the tentative Board decisions posted on the FASB’s Web site.

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