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Life Health > Health Insurance > Life Insurance Strategies

FASB Drops Bifurcation Proposal

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Members of the Financial Accounting Standards Board have decided to give up on asking insurers and policyholders to split reporting for the risk transfer and financing components of insurance policies.

In a request for comments released in May, staff members at FASB, Norwalk, Conn., had suggested that the reporting split proposal, or “bifurcation” proposal, might apply to everyday products such as group life insurance and health insurance as well as to more controversial products, such as finite reinsurance arrangements, that have drawn regulators’ attention to insurance accounting rules.

FASB received 63 comments about the bifurcation proposal, and most opposed bifurcation.

“They asserted bifurcation would be too costly, complex and arbitrary,” according to the analysis of the FASB staff.

But FASB members said earlier this week during a meeting that commenters had misunderstood the intent of the bifurcation proposal.

What FASB had really been hoping to receive were discussions about relatively clear, simple techniques insurers, policyholders and others could use distinguish ordinary insurance policies from the kinds of finite reinsurance policies and other policies that should get closer scrutiny, FASB members said, according to an audio recording of the meeting posted on the FASB Web site.

FASB members decided that they were not sure how to set practical rules that insurers and others could use to distinguish financing components of insurance from risk transfer components.

Instead, FASB member decided to address finite reinsurance reporting concerns by updating current FASB rules that define reinsurance contracts as contracts that “involve significant transfer of insurance risk” and a “reasonable possibility that the reinsurer will realize a significant loss.”

FASB members also agreed that, although they are not going to require insurers and others to bifurcate reporting of insurance or reinsurance policies, it is legal for insurers and others that want to bifurcate policy financial reporting to do so.

The decision to drop the bifurcation proposal initially has generated little public comment, except for a brief notice from the American Academy of Actuaries, Washington.

An audio recording of the FASB meeting is on the FASB site, at Document Link


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