2020 Insurance Accounting Guide

A look at key issues

Since February 2020, there has been a dramatic shift in the operating environment of financial markets as a result of the increased volatility caused by the COVID-19 pandemic. While insurance companies have been facing abounding uncertainty, regulators have been continuing to focus on improving the transparency of insurance companies’ operations to help stakeholders make informed investment choices.

Economic growth

The COVID-19 pandemic has presented insurance companies with several challenges, such as swiftly transitioning to a remote workforce and reassessing their financial goals and market strategies in a contracting economy. In addition, insurers should not overlook the need to manage their potential reputational risks in the midst of this pandemic.

As insurers carefully consider the potential impact of COVID-19 on their short- and long-term financial outlooks, they should understand that a longer-term period of social distancing could change how they stay in contact with their clients, prospect for referrals, and serve clients who may be experiencing financial strain. In times of uncertainty and financial stress, it seems increasingly important for the insurance sector and broader financial services industry to maintain connections and be well-positioned to serve clients.

Accounting changes

The standard setters made limited changes to the accounting and financial reporting guidance in 2020, so industry participants have focused mainly on adopting or preparing to adopt the major standards issued previously by the FASB.

In 2018, the FASB issued ASU 2018-12, which significantly changes the accounting for certain long-duration insurance contracts and the amortization of deferred acquisition costs (DAC) related to long-duration contracts by amending the accounting and disclosure requirements under U.S. GAAP. The new guidance is intended to improve the transparency of insurers’ financial statements.

In November 2020, the FASB reached a decision to defer the effective date of the amendments in ASU 2018-12 for all insurance entities by one year. The Board also amended the early application provisions of ASU 2018-12.