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Accounting and Financial Reporting Update (2016)
The ninth edition of our annual update highlights selected accounting and reporting developments that may be of interest to insurance entities. Among other topics, the publication discusses (1) proposed improvements to the accounting for long-duration insurance contracts, (2) the new guidance on short-duration insurance contract disclosures, and (3) the SEC’s continued focus on rulemaking, particularly in connection with its efforts to complete mandated actions under the Dodd-Frank Act.
The insurance industry continues to be poised for growth and expansion. A stabilized economy and available capital have allowed insurers to focus on the development of new products and services as well as on entering into new markets. Accompanying these opportunities, however, are countless obstacles. For example, insurers are dealing with the ever-present risk of cybercrime, significant changes in consumer behavior, and a low-interest-rate environment that continues to squeeze investment margins. New and forthcoming regulations and accounting pronouncements also require insurers to quickly adapt to changes. With all of these moving pieces, industry executives have their hands full.
To offset the bottom-line impact of low interest rates, insurers continue to look for opportunities for growth within new segments of the insurance market. They are doing this by developing new products, implementing new marketing strategies, and entering new markets through mergers and acquisitions.
The regulatory landscape for insurance will continue to present significant challenges in 2017, with insurers facing new or modified rules and requirements that could significantly affect how they do business. In some regulatory areas, the requirements have been clarified over the past year, and companies are now focusing on compliance and refinement. In others, regulations are still emerging or evolving, and companies are looking for clues to help them prepare for the upcoming changes.
In 2015, U.S. insurers were called upon to implement the Own Risk and Solvency Assessment (ORSA), which required them to assess the adequacy of their risk management and current and prospective solvency positions. In 2016, we have continued to see insurers enhance their enterprise risk management frameworks to help them fulfill their annual ORSA reporting requirements.
At the federal level, laws such as the Dodd-Frank Act have given rise to a whole host of new regulators and regulatory influencers — including the Federal Insurance Office, the Financial Stability Oversight Council, and the Office of Financial Research — which are having a significant impact on the insurance business.
These new entities are actively working to define their roles and establish their authority, creating uncertainty and confusion for many insurers. In some cases, they are prompting state regulators to become more proactive and aggressive to avoid possible encroachment from federal authorities, particularly in areas such as capital requirements, governance, risk management, and consumer protection.
Insurance carriers should expect ongoing regulatory changes and uncertainty as authorities jockey for position and debate whose set of rules the industry must ultimately apply.
In September 2016, the FASB issued a proposed ASU that would improve the accounting for longduration insurance contracts by amending both the accounting and disclosure requirements under U.S. GAAP for insurers that issue long-duration insurance contracts. The Board believes that the targeted improvements will provide more timely and useful information to users of the financial statements and will simplify certain aspects of the existing accounting model. Comments of the exposure draft were due by December 15, 2016. An effective date has not been provided.
The IASB’s new insurance standard (expected to be issued in early 2017) is likely to establish an accounting model and disclosure requirements that differ significantly from those under U.S. GAAP.
For additional information about industry issues and trends, see Deloitte’s 2016 Financial Services Industry Outlooks.