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Targeted improvements to the accounting for long-duration contracts
The 1-2-3s of the implementation journey
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2018-12, often referred to as targeted improvements for long-duration contracts. But ASU 2018-12 introduces new reporting complexities and will require more integration of finance and actuarial teams across processes and systems. Meeting the standard will be a challenging multiyear effort, but as with any major change, the ASU presents opportunities to achieve business goals and improvements.
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A collection of articles and insights to help you prepare for FASB ASU 2018-12
New! Tackling the ASU 2018-12 long-duration targeted improvements new disclosures requirements
Accounting Standards Update 2018-12 (ASU 2018-12) targets improvements to US GAAP for long-duration contracts and requires insurers to add disclosures in annual and interim reporting periods. This article—the seventh in our series on the Financial Accounting Standards Board (FASB) ASU 2018-12 update—focuses on one of the complex disclosure requirements, the future policy benefits rollforward.
This long-needed disclosure will affect requirements for enterprise process, governance, people, technology, and data. For many insurers, ASU 2018-12 will present a real reporting challenge that calls for a substantial redesign of current reporting processes and the collection of data for transition and future reporting. To comply, insurers will need to evaluate numerous accounting policies, valuation procedures, and data management structure.
Discount rate policies and development methods for long-duration targeted improvements
One of the key changes defined in FASB ASU 2018-12 focuses on discount rates. The use of upper-medium grade low credit risk fixed-income instrument yields is required by the long-duration targeted improvements (LDTI) standard. The discount rate must be updated each reporting period with changes impacting accumulated other comprehensive income.
In this article, you’ll learn about technical considerations when electing a discount rate policy and development method—as well as the impact of implementing the new guidance on processes, systems, and data.
Leveraging LDTI regulatory intersections with IFRS 17, PBR, and CECL
As insurers upgrade their compliance processes to meet the new FASB ASU 2018-12 requirements, the implications of more regulatory changes are compounded for those with multi-national jurisdictions. Process implementation to comply to newly issued International Financial Reporting Standard (IFRS) insurance requirements are also in full swing, as well as for US entities adopting the FASB’s current expected credit loss (CECL) model and statutory (Stat) modifications toward principle-based reserving.
This article examines the regulatory intersections of LDTI, IFRS 17, PBR, and CECL and explores opportunities to leverage synergies to enhance efficiencies, increase cost savings, and reduce resource requirements.
FASB long-duration targeted improvements
ASU 2018-12 guidance provides two transition methods for accurately measuring the impact of the FASB Long-Duration Targeted Improvements (LDTI) on existing business: Full retrospective or modified retrospective transition. This retrospective approach allows for accurate and precise measurement to establish the opening balance sheet at the transition date. The carryover approach (modified retrospective) provides guidance on how to pivot balances as of the election date (January 2019) and how to record impacts that occur based on the new guidance.
This paper outlines considerations to help insurers determine which of the two transition methods best suits their needs.
Targeted improvements to the accounting for long-duration contracts
In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update 2018-12 (the “ASU”), amending the accounting model under USGAAP for certain long-duration insurance contracts and requiring insurers to provide additional disclosures in annual and interim reporting periods. ASU 2018-12 introduces new reporting complexities and will require more integration of finance and actuarial teams across processes and systems.
This article will help finance and actuarial teams to better understand implementation of ASU 2018-12.
Modernizing data and analytics capabilities for long-duration contracts success
For many US insurers, ASU 2018-12 is just one of several data-intensive accounting changes that must be addressed in a relatively short timeframe. The data, technology, and operational implications of ASU 2018-12 are significant: Insurers will need to be much more agile in how data is managed, analyzed, and reported, at the most granular level and in aggregate.
Explore this report on the new standard to learn more about the implications—and opportunities—compliance will present around data, technology, and operations.
The road ahead on targeted improvements to the accounting for long-duration contracts
As Deloitte has engaged with insurers preparing to implement ASU 2018-12, we have seen firsthand the early successes and challenges of the new insurance accounting standards. Implementing the standard successfully will require multifaceted end-to-end process transformation—data origination through reporting—requiring major efforts from accounting and finance, actuarial, technology, and project management departments, and a critical role for product development and pricing, forecasting, risk management, tax, legal, internal audit, investments, financial planning, procurement, human resources, and investor relations.
This article offers observations and early lessons learned and discusses steps insurers should consider on the path to a successful ASU 2018-12 implementation.
The publication of ASU 2018-12 defines new regulatory requirements for certain long duration insurance products, otherwise known as the Long Duration Targeted Improvements (LDTI). Despite being finalized, the new requirements are subject to continuous interpretation from the insurance industry and practitioners. Deloitte is closely involved in these discussions and shares its Point of View (POV) to support the application of LDTI. Please note that the Deloitte POV’s are written at a point in time and should not be interpreted as stand-alone guidance without taking into account ongoing industry views and evolving positions from both FASB and the Insurance Experts Panel (IEP). Until the industry is nearing the effective date on 1 January 2022, industry views and interpretations such as the Deloitte POV’s are subject to change.