Accounting Standards Codification (ASC) 944, Financial Services — Insurance, is the source of authoritative Generally Accepted Accounting Principles (GAAP) to be applied to long-duration insurance contracts for which GAAP is applicable. In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (the ASU or the Update), which will amend and update ASC 944.
The objective of the Update is to improve, simplify and enhance the financial reporting of long-duration contracts providing financial statement users with more useful information about the amount, timing and uncertainty of cash flows related to those contracts. The Update affects all insurance and reinsurance companies that issue long-duration contracts, including life insurance, long term care, disability income and annuities. To read more about the Overview and Approach to the ASC 944, please review Long-Duration Contracts-Overview and Approach.
This article seeks to inform and guide practitioners in the industry about required changes brought about by the Update and to implement the applicable improvements to estimating the liability for future policy benefits.