LONG DURATION TARGETED IMPROVEMENTS (LDTI)
R&C: With US GAAP is undergoing some significant changes for insurance, could you provide an overview of Long Duration Targeted Improvements (LDTI), as issued by the Financial Accounting Standards Board (FASB) in its Accounting Standards Update (ASU) 2018-12?
Chang: On 15 August 2018, the Financial Accounting Standards Board (FASB) issued ‘ASU2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts’ (LDTI), which applies to insurance entities that issue long-duration life insurance contracts in the US market. The LDTI standard introduces four targeted improvements. First, assumptions used to measure the liability for future policy benefits (FPB) for traditional and limited-payment contracts. Second, measurement of market risk benefits (MRB). Third, amortisation of deferred acquisition costs (DAC). Fourth, disclosure, which introduces new requirements such as liability rollforwards and information about significant inputs, judgments, assumptions and methods used in the measurement.
Lammons: This is a significant change for many insurers that impacts how they measure, recognise, present and disclose insurance contracts that are considered ‘long duration’. It has been a long time in the making, with discussions going back to a joint project with the International Accounting Standards Board (IASB). FASB’s intention with its accounting stands updates (ASU) – issued in August 2018 – was to improve, simplify and enhance the financial reporting of long-duration contracts, including providing users with more relevant and current information. In November 2019, the FASB deferred effective dates, so for year-end companies, the effective date for Securities and Exchange Commission (SEC) filers other than smaller reporting companies – as defined by the SEC – is now 1 January 2022. For all other entities, the effective date is 1 January 2024. However, insurers may elect to adopt the new standard early if they so choose.
Jul-Sep 2020 Issue
SAS
KPMG