FASB ISSUES ACCOUNTING STANDARDS UPDATE
TO IMPROVE DISCLOSURES FOR SHORT-DURATION INSURANCE
Norwalk, CT, May 21, 2015—The Financial Accounting Standards Board (FASB) today issued an Accounting Standards Update (ASU) intended to make targeted improvements to disclosure requirements for insurance companies that issue short-duration contracts—in which insurance coverage is provided for a fixed period of short duration (typically one year or less). Examples of short-duration insurance contracts subject to the enhanced disclosure requirements include auto, homeowners, renters, and catastrophe insurance.
FASB ASU No. 2015-09, Financial Services—Insurance (Topic 944): Disclosures about Short-Duration Contracts, focuses on providing additional information about insurance liabilities to help users understand the nature, amount, timing, and uncertainty of future cash flows related to insurance liabilities; and the effect of those cash flows on the statement of comprehensive income.
“Stakeholders said that additional disclosures about unpaid claims and claim adjustment expenses for short-duration insurance contracts would provide transparency and additional insight into an insurance company’s ability to underwrite,” said FASB Chairman Russell G. Golden. “The disclosures required by this ASU are intended to provide investors a clearer picture of an insurance company’s claim-related liabilities on the balance sheet, and how those liabilities change over time.”
This ASU includes five main provisions that require an insurance company to:
- Provide tables on a disaggregated basis illustrating the amount of insurance claims that have been incurred, as well as the amounts the insurance company has paid out on these claims
- Reconcile the claims development tables to the amount of the liability presented on the balance sheet
- Disclose, for each accident year presented in the claims development tables, the total of incurred claims that have yet to be reported, plus the company’s estimate of whether reported claim amounts will increase
- Provide disaggregated information about the frequency of reported claims, unless obtaining this information is impracticable
- Provide a disaggregated history of claims duration, presented as the average annual percentage payout of incurred claims by age.
The ASU will be effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016, for public companies. For private companies, the ASU will be effective for annual periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017.
More information on the standard, including a FASB In Focus, is available on the FASB website.
About the Financial Accounting Standards Board
Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB. For more information, visit www.fasb.org.