When American International Group Inc. released its Form 10-K annual report, it drew attention to efforts by the Financial Accounting Standards Board to give life settlement companies a break.
Life settlement companies buy life insurance policies from consumers who no longer want the policies.
FASB, Norwalk, Conn., is developing an official staff position that should increase the value of assets on a life settlement firm’s books between the day it buys a life insurance policy and the day the life insurer that wrote the policy pays the death benefits.
The change, approved at a FASB meeting in May, would let a life settlement company use the price it pays for a life insurance policy, along with premium payments used to keep the policy in force, as the value of a life insurance policy asset, according to FASB meeting notes.
When a life settlement company collects death benefits on a policy, the company can calculate the income generated by the purchase of that policy by subtracting the “carrying cost” of the policy investment from the policy death benefits, FASB says.
FASB hopes to release a draft staff position on the new approach by June 30.
Currently, FASB Technical Bulletin 85-4, a ruling released in 1985, advises life insurers to use a policy’s cash surrender value as the policy’s carrying value.