FASB Public Roundtable - Targeted Improvements to the Accounting for Long-Duration Insurance Contracts

Submitted by Cynthia Braman on Wed, 05/17/2017 - 2:49pm

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By Barry Wilhelm

Business people entering an office buildingThe Financial Accounting Standards Board (FASB) recently held a public roundtable to gather feedback on its proposal that would fundamentally change the accounting model for certain long-duration insurance contracts.

In FASB’s view, the changes are minor. However, industry participants in the roundtable did not share that view.

Several companies repeated the issues they raised in their comment letters submitted in response to FASB’s September 2016 exposure draft. Some said “aspects of the proposal would require manpower they do not have and would result in misleading information to investors.” Overall, many roundtable participants expect to incur costs they deem would be excessive and would face a higher-than-normal amount of complexity incorporating the changes.

Most roundtable participants agreed with the premise of the proposal – making insurance company financial statements more transparent. They also agreed with the central concept of requiring insurance companies to make current, updated measurements of contract liabilities.

Unfortunately, the “devil is in the details”. Below is an excerpt from a Thomson Reuters’ article on the meeting:

“I'd have to have armies of actuaries that would basically be sitting in a room updating this information — no kidding", said Mary Hoeltzel, vice president and global chief accounting officer at Cigna Corp., about a provision that would require new financial statement disclosures about the liability for future policy benefits and the additional liability for paying out an annuity contract, death, or other insurance benefits on a quarterly and annual basis.

"And when you think about the fact that this is a long-tail business, quarterly changes... is really not meaningful", Hoeltzel said.

Alex Obaza, an analyst at mutual fund manager T. Rowe Price Group Inc., said he agreed that the level of detail outlined in the proposal was not necessary for quarterly reports.

"I don't want every single assumption going into the liabilities for every single product line", Obaza said. "What we want is to compare companies and find outliers. Who seems to be aggressive or way out of the pack? That's a current level of granularity we don't have today."

It remains to be seen where FASB goes from here. Stay tuned!


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