FASB Issues an Exposure Draft to Improve the Accounting for Financial Guarantee Insurance Contracts

Proposal Is Written in New FASB Format Designed to Enhance Understandability

Norwalk, CT, April 18, 2007—The Financial Accounting Standards Board (FASB) today issued a proposal to improve the accounting for financial guarantee insurance contracts. The proposal, Accounting For Financial Guarantee Insurance Contracts an Interpretation of FASB Statement No. 60, reduces diversity in practice and provides financial statement users with clearer, more comparable information and expanded disclosures.

In keeping with the FASB’s mission to help reduce complexity in the financial reporting system, today’s proposal has been written in a new format intended to improve its understandability. Notable changes from formats used in previous Statements issued include the use of bold text at the beginning of each section to convey the accounting principle for that section and the inclusion of examples in the body of the standard to illustrate the proposed accounting guidance for certain paragraphs.

Currently, there is diversity in the way financial guarantee insurance contracts are accounted for by insurance enterprises. That diversity has resulted in differences in the recognition and measurement of claim liabilities and can lead to different financial statement information for similar transactions.

Today’s exposure draft requires that insurance enterprises recognize premium revenue when insured contractual payments (generally principal and interest) are made by the issuer of the insured financial obligation. The proposal presumes that the risk to the insurance enterprise is reduced to the extent of the insured contractual payments made. The proposed Statement also:

  • Requires recognition of a claim liability prior to a default (insured event) under certain criteria


  • Requires more consistent claim liability measurement based on the present value of expected cash flows


  • Requires expanded disclosures about financial guarantee insurance contracts.


“Today’s proposal provides investors and other financial statement users with clearer, consistent, and more comparable information about financial guarantee insurance contracts,” said Mark Trench, FASB project manager. “It would be effective for financial statements issued for fiscal years beginning after December 15, 2007, and all interim periods within those fiscal years.”

Open Due Process

The Board is seeking written comments on the proposal by June 18, 2007. Parties interested in providing input on today’s proposal should submit their comments by email to, File Reference No. 1530-100. Those without email may send their comments to:


Technical Director—File Reference No. 1530-100
Financial Accounting Standards Board
401 Merritt 7
PO Box 5116
Norwalk, Connecticut 06856-5116


About the Financial Accounting Standards Board

Since 1973, the Financial Accounting Standards Board has been the designated organization in the private sector for establishing standards of financial accounting and reporting. Those standards govern the preparation of financial reports and are officially recognized as authoritative by the Securities and Exchange Commission and the American Institute of Certified Public Accountants. Such standards are essential to the efficient functioning of the economy because investors, creditors, auditors, and others rely on credible, transparent, and comparable financial information. For more information about the FASB, visit our website at