Accounting Standard Updates

12 Days of SSAP – ASU 2020-11: FASB Delays Long-Duration Contracts’ Effective Date

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Hot Take:

Hot Take

As the holidays approach, JLK Rosenberger is taking a new perspective on a holiday classic – the Twelve Days of Christmas. Rather than filling your head with turtle doves and gold rings, we are focusing on the latest changes to SSAP and how they will impact your insurance company in 2021 and beyond.

This article covers the welcome news for insurers deferring the updated long-term insurance standard’s effective date due to the effects of the COVID-19 pandemic.

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This is a quick update to remind you of the final effective dates of Accounting Standards Update (ASU) No. 2018-12, Financial Services — Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.

ASU No. 2018-12 is designed to improve the complex, nuanced reporting requirements for long-term insurance policies. The new rules are intended 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.

After addressing the delay twice earlier in the year, the Financial Accounting Standards Board (FASB) finalized a rule to defer the updated long-term insurance standard’s effective date. On November 5, 2020, due to the effects of the COVID-19 pandemic, the FASB issued ASU No. 2020-11 Financial Services – Insurance (Topic 944), Effective Date and Early Application, which delays the updated long-term insurance standard’s effective date for one year. ASU No. 2020-11 also extends the effective date of the amendments in ASU No. 2019-09, Financial Services—Insurance (Topic 944) for all entities. This deferral is welcome news intended to give insurers more time to implement the changes amid the COVID-19 pandemic.






Chart source: FASB

Deeper dive on this topic:

Click here to read more about the long term insurance standard delay.