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.