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October 21, 2019 at 12:38 PM
The Financial Accounting Standards Board (FASB) has formally agreed to give life insurers more time to cope with new rules that could lead to insurers adding hundreds of millions of dollars in gains and losses to their net results just about every quarter.
FASB announced Friday that it has pushed back the effective dates for new rules for reporting on the value of long-duration insurance contract obligations, such as annuities, long-term care insurance benefits and long-term disability insurance benefits.
(Related: Accounting Group May Put Off Life Insurers’ Benefits Value Rollercoaster Rides)
Here’s how the Norwalk, Connecticut-based group has changed the effective dates for three groups of insurers:
- For the big public insurers that file regular financial reports with the U.S. Securities and Exchange Commission, the effective date will move to January 2022, from January 2021.
- For smaller public companies, the effective date will move to January 2024, from January 2021.
- For any other entities subject to the rules, the effective date will move to January 2024, from January 2022.
FASB approved the long-duration contract rules in 2018, in Accounting Standards Update 2018-12.
ASU 2018-12 requires an affected insurer to update estimates of the value of the long-duration contract benefits it has promised whenever the insurer releases financial reports.
Because the value of benefits obligations is often much higher than an insurer’s annual premium revenue, even small changes in the projected value of the benefits obligations can be as big as, or bigger than, the insurer’s operating income.
Insurers told FASB that implementing ASU 2018-12 by January 2021 would be difficult.
FASB announced a rule delay proposal in August.
FASB members approved the proposal Oct. 16.
FASB Basics
In the United States, a ”public company” is a company with shares of stock that are held by more than 500 shareholders.
FASB oversees the U.S. Generally Accepted Accounting Principles (GAAP). U.S. public companies and some other U.S. companies use financial statements prepared according to U.S. GAAP rules to report on their performance to investors and lenders.
State insurance regulators have worked with the National Association of Insurance Commissioners (NAIC) to develop a separate system of accounting rules — the Statutory Accounting Principles (SAP) accounting standards.
