Extensive changes are needed under the new requirements for disclosures about short-duration contracts accounting.
The Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2015-09 as a result of feedback that the current recognition and measurement model was adequate, but additional disclosures would increase the transparency of this significant estimate.
These additional disclosures focus on the estimates of unpaid claims and claims adjustment expenses as well as provide additional information regarding the amount, timing and uncertainty of cash flows arising from these insurance contracts.
- Public companies should now be reporting under the new ASU as they were required to implement the changes for annual periods beginning after Dec. 15, 2015 and interim periods beginning after Dec. 15, 2016.
- Private companies should be preparing to implement as they received a one year deferral with effective dates for annual periods beginning after Dec. 15, 2016 and interim periods beginning after Dec. 15, 2017.
All insurers issuing short-duration contracts will be impacted by the new accounting update. Additional disclosures and changes to existing disclosures will be needed. Learn more about the specific types of contracts that are considered “short-duration” and the insurance company types that will be most impacted in the full article.
Significant changes in methodologies and assumptions
Insurance entities are required to disclose the basis for estimating unpaid claims and claim adjustment expense liability. As significant judgment is applied in selecting the actuarial methods and assumptions used in this estimate, FASB decided a disclosure concerning significant changes to these methodologies and assumptions should also be required. Learn more about the changes from the accounting standards update in the full article.
This article addresses:
- Significant changes in methodologies and assumptions
- Claims development tables presentation changes
- Reconciliation of claims development tables to the aggregate liability for unpaid claims
- Claims frequency and description of methodologies used to determine frequency disclosures
- Average annual percentage payout by age for accident years presented (excludes health)
- Information about amounts reported at present value
- Health insurance considerations
- Implementation issues including aggregation/disaggregation and international components
- Auditor considerations for RSI
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.