Long-Duration Contracts Targeted Improvements – Updating Cash Flow Assumptions in the Net Premium Ratio

Accounting Standards Codification (ASC) Topic 944, Financial Services — Insurance, is the source of authoritative generally accepted accounting principles (GAAP) to be applied to long-duration insurance contracts. 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 (ASU 2018-12), which will amend and update ASC Topic 944.

The objective of the new guidance 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 new guidance affects all insurance and reinsurance companies that issue long-duration contracts, including life insurance, long term care, disability income and annuities.

CONTRIBUTORS

Matt Moffitt, CPA
Senior Manager, DHG Insurance

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