PwC responds to the FASB's exposure draft on accounting for insurance contracts

Jun 27, 2013, 12:47 ET from PwC US

NEW YORK, June 27, 2013 /PRNewswire/ -- Today, the Financial Accounting Standards Board issued its exposure draft on accounting for insurance contracts. This comes on the heels of the International Accounting Standards Board issuing its report on the same issue.  

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"The FASB proposal would represent a transformational change in the way that insurance contracts are measured and reported in financial statements," said Donald Doran, national professional services financial instruments co-leader, PwC.  "We expect the industry to have mixed views on the proposal. The FASB has attempted to address the concerns raised on the prior discussion paper. Under the proposed guidance, there would be changes to the earnings pattern of underwriting and net investment margins and changes in the pattern and amount of revenue. In addition, there would likely be increased income statement volatility due to the requirement to update assumptions each period. Income statement volatility would be somewhat mitigated by the requirement that the impact of changes in discount rate assumptions be recorded in other comprehensive income.

In addition, The IASB re-issued their exposure draft on insurance contracts last week with the same comment period. Based on the number and nature of differences between the views expressed by the FASB and IASB during their deliberations, and the immediate need for an international standard, the boards may not achieve a converged standard.

Given the potential implications of the changes being considered, entities should be engaged in assessing the impact to their products, systems, and investor reporting in order to respond to the proposals."

"Today's FASB proposal would have a significant impact on insurance companies. If the board ultimately adopts the proposal, it would fundamentally change the accounting by all entities that issue insurance contracts, including banks," added Bob Sands, U.S. insurance leader, PwC. "Combined with regulatory changes such as the Own Risk Solvency Assessment and principle based reserving, adopting the FASB proposal would be a significant challenge for the industry.  As a consequence, insurers potentially would need to overhaul their systems and performance reporting.

It will be critical for insurers to work closely with stakeholders to make sure that they understand the impact of the significant changes being proposed. Due to delays in the project, it has fallen off many insurers' radar; however the remainder of 2013 could be the last opportunity for the industry to influence the debate before the FASB proceeds to a final standard in late 2014 or early 2015. Insurers need to act now to assess the implications of the new proposals on both their contracts and business practices and to assess the additional demands of the proposals on resources, data and modelling systems."

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