Financial Services Ireland

IFRS 17

FASB introduce accounting changes for long-duration insurance contracts

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The Financial Accounting Standards Board (FASB) issued new guidance on August 15^th, that will change how insurers account for long-duration contracts.

The changes are intended to provide users of financial statements with more information about insurance liabilities, including the amount, timing and uncertainty of an insurer’s cash flows related to long-duration contracts.

Insurers will need to change their processes, systems and internal controls to apply the guidance.

You can download the attached for full details, but the key points to know include:

The FASB issued final guidance that will significantly change how insurers account for long-duration contracts, including how they measure, recognise and make disclosures about insurance liabilities and deferred acquisition costs.

Insurers will be required to review cash flow assumptions at least annually and update them if necessary. They also will have to make quarterly updates to the discount rate assumptions they use to measure the liability for future policyholder benefits.

The guidance creates a new category of market risk benefits (i.e., features that protect the contract holder from capital market risk and expose the insurer to that risk) that insurers will have to measure at fair value.

The guidance is effective for fiscal years beginning after 15 December 2020 and interim periods therein (i.e., the first quarter of 2021 for calendar-year insurers) for PBEs and a year later for other entities. Early adoption is permitted. The guidance is to be applied as of the earliest period presented in the financial statements (e.g., 1 January 2019 for calendar-year PBEs).

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Ciara McKenna

FS Partner, Assurance, Insurance

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