FASB Delays the Long-Term Insurance Standard Yet Again 

For a second time, the Financial Accounting Standards Board (FASB) finalized a rule to defer the updated long-term insurance standard’s effective date. This deferral is welcome news intended to give insurers more time to implement the changes amid the COVID-19 pandemic.

Twelve years in the making

In August 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-12, Financial Services — Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, to improve the complex, nuanced reporting requirements for long-term insurance policies. The new rules are designed to simplify targeted areas in reporting life insurance, disability income, long-term care, and annuity payouts.

Specifically, the update requires insurers to:

• Review the assumptions annually they make about their policyholders, and
• Update the liabilities on their balance sheets if the assumptions change.

Under the updated guidance, insurance companies must measure updated liabilities using a standardized, market-observable discount interest rate based on the yield from an upper-medium-grade, fixed-income instrument. The method required by ASU No. 2018-12 is a more conservative approach than one used for insurance policies under existing guidance.

Requests for deferral

When the updated standard was issued, the original effective dates were fiscal years beginning after December 15, 2020, for public companies and a year later for private companies. In November 2019, the FASB postponed the standard’s effective dates from 2021 to 2022 for public companies and 2022 to 2024 for smaller reporting companies (SRCs), private companies, and not-for-profit organizations. This delay was designed to give insurance companies more time to update their software and methodology, train their staff, and conduct educational outreach to investors.

In March, the American Council of Life Insurers (ACLI), the trade organization representing the sector, requested an additional delay, citing unprecedented challenges stemming from the COVID-19 crisis. The ACLI told the FASB that the pandemic’s impacts continue to escalate, with little clarity about how long the capital markets may persist within their current turbulent state.

During a recent meeting, the FASB voted 6-to-1 to postpone the effective date from 2022 to 2023 for large public companies and from 2024 to 2025 for other organizations.

We can help

The FASB has been sympathetic to companies trying to navigate significant accounting rule changes during these uncertain times. In addition to deferring the updated rules for long-term insurance contracts, the FASB in May postponed the effective dates for the updated revenue recognition and lease rules for certain entities.