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Life Insurers Get More Time to Apply Policy Obligation Accounting Rules

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The Financial Accounting Standards Board (FASB) is giving life insurers an extra year to shift to an accounting standard that could lead to big swings in net earnings.


  • A copy of the FASB accounting standards update is available here.
  • An article about the original FASB benefits rule delay proposal is available here.

The Norwalk, Connecticut-based accounting standards group said last week that it has approved an update for Accounting Standards Update 2018-12 Financial Services — Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.

The FASB update will give big, publicly traded life insurers until fiscal years starting after Dec. 15, 2022, to implement the new accounting rules.

The latest update will give other life insurers until fiscal years beginning after Dec. 15, 2024, and quarters within fiscal years beginning after Dec. 15, 2025, to comply with the new rules.

To make compliance easier for life insurers that stick to the original implementation standard, FASB is letting insurers that adopt the new standards early apply the new rules to just one previous reporting period, rather than applying the new rules to two previous reporting periods.

FASB has provided the new implementation schedule in Accounting Standards Update 2020-11.

ASU 2018-12

ASU 2018-12 requires insurers with contracts that last for many years — such as annuities, life insurance policies, disability insurance policies, and long-term care insurance policies —  to come up with an estimate of the value of the benefits promised every time they report their earnings. Insurers are supposed to put the changes in their net income or net loss figures.

Other, comparable “mark-to-market” accounting rules have led to giant fluctuations in life insurers’ earnings, with some firms frequently reporting net income figures or net loss figures exceeding $1 billion.

FASB previously changed the implementation timeline for ASU 2018-12 about a year ago when it gave big, publicly traded life insurers one extra year to comply; smaller publicly traded life insurers three extra years to comply; and other affected life insurers two extra years to comply.


The FASB board says it received 28 comments on the proposal to extend ASU 2018-12 implementation deadlines a second time.

“Overall, respondents unanimously supported the proposed amendments to defer the effective date of the amendments in Update 2018-12 and to modify the early application guidance,” the FASB board says in an analysis included in an explanation of the new standards implementation update.

Commenters “generally noted that a one-year deferral should ultimately result in improved transparency to investors in the form of increased quality, comparability, and usability of financial statements,” the FASB board says. “Comment letter respondents also noted that a one-year deferral should increase confidence that resources will be able to fully return to their implementation efforts while working through unexpected challenges and disruptions brought on by COVID-19.”

— Read Accounting Rules Could Scare Some Life Insurers Private: S&P)on ThinkAdvisor.

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