ASU No. 2015-09 – New Disclosures about Short-term Insurance Contracts

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On May 21, 2015 FASB published ASU No. 2015-09, Financial Services – Insurance (Topic 944): Disclosures about Short-term Insurance Contracts which requires additional footnote disclosures in order to provide more information about claims incurred, certain amounts paid, and any significant changes in methods and assumptions used to calculate liabilities.

This amendment applies to insurers that issue short-duration contracts where short-duration contracts are defined as contracts that either a) provide insurance protection for a fixed period of short duration or b) can be canceled or adjusted by the insurer at the end of any contract period.

For public entities, this amendment is effective for annual periods ending on or after December 15, 2015 and interim periods with an annual period beginning after December 15, 2016. For all other entities it is effective for annual periods beginning on or after December 15, 2016 and for interim periods with an annual period beginning after December 15, 2016.

The amendments to FASB 944-40-50 Financial Services – Insurance require the following disclosures about liability for unpaid claims and claim adjustment expenses:

  1. Incurred and paid claims development by accident year, net of reinsurance. This must be presented for the number of years for which a claim typically remains outstanding but need not exceed ten years including the current year presented in the financial statements. Information about development that precedes the current period is considered supplementary information.
  2. A reconciliation of incurred and paid claims development to the liability for unpaid claims and claim adjustment expenses. This must include separate disclosure of reinsurance recoverable on unpaid claims for each period presented in the financial statements.
  3. Incurred-but-not-reported liabilities (IBNR) and development on reported claims included in the liability for unpaid claims and claim adjustment expenses. This must be presented for each accident year presented in the claims development information and must be accompanied by a description of reserving methodologies and any changes in methodologies, if any.
  4. Quantitative information about claim frequency (unless impracticable to do so) and qualitative description of methodologies used for determining claim frequency and any changes in methodologies, if any. This must be presented for each accident year presented in claims development information.
  5. Average annual percentage payout of incurred claims by age (history of claims duration) for all claims except health insurance claims. This must be presented for the number of accident years presented in the claims development information.Information should be aggregated or disaggregated so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have significantly different characteristics.

In addition, entities must disclose:

  1. Significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the changes and effects on the financial statements.
  2. A rollforward of the liability for unpaid claims and claim adjustment expenses. For health insurance claims, disclosures must include IBNR and expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. For health insurance claims, this disclosure should be aggregated or disaggregate so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have significantly different characteristics.
  3. For unpaid claims and claim adjustment expenses reported at present value, disclosures must also include:
  • Aggregate amount of discount for the time value of money deducted to derive the liability for unpaid claims and claim adjustment expenses.
  • Interest accretion recognized for each period presented in the income statement.
  • Line items under which the interest accretion is classified.

Contact Us

The new reporting requirements implemented in ASU No. 2015-09 are complex and represent a significant change to annual reporting procedures. Looking for assistance implementing these new guidelines? For additional information on ASU No. 2015-09, please contact Bill Rosenberger, CPA, at 818-334-8623, or click here for email. We look forward to hearing from you!

 

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