FASB Tweaks Upcoming Rule on Insurance Contracts to Ease Transition

The US accounting standard setter allowed insurers that recently sold their long-term insurance business to exclude those from their balance sheets when they comply with a new accounting rule on valuing certain contracts.

Wednesday’s move by the Financial Accounting Standards Board is aimed at helping insurance companies meet new requirements, which are set to go into effect for large publicly traded businesses in early 2023. The FASB in 2019 and 2020 delayed implementing the rule by a year to give companies more time to prepare.

Under the rule, companies must review the assumptions they use to measure the value of their long-term obligations related to policies such as annuities and life insurances and revise them if needed. Long-term contracts include agreements on annuities, endowments and title insurance, whereas short-duration contracts usually cover property and liability protection.

Originally, insurers that sold or disposed of their long-term policies would have needed to apply the new accounting rule on valuing certain contracts when they presented prior periods. That would have posed a challenge for some insurers, as they would have had to value contracts they no longer possessed.

Companies such as Cigna Corp.

Assurant Inc.

and Allstate Corp.

over the past year shed their long-term insurance businesses, in some cases to reduce losses or focus on other business lines. Assurant in August 2021 sold its funeral insurance business to fellow insurer CUNA Mutual Group for $1.35 billion, followed by a deal by Allstate in November to unload its life insurance unit to Blackstone Inc.,

a private-equity firm. Cigna earlier this year sold some of its Asia-Pacific assets to insurer Chubb Ltd.

for $5.4 billion.

“Part of the reason why we felt that this election was going to be beneficial was both because it was going to reduce costs for companies, but also because of concerns that [it]…could actually result in confusing and misleading information for investors,” FASB board member Christine Botosan said Wednesday.

Insurance companies supported the relief and said that disposed contracts were no longer relevant to their current operations or future cash flows. Disclosing information about exited contracts, such as changes to the previously recognized gain or sale, wouldn’t be useful to investors and could prove more confusing, Mary Agoglia Hoeltzel, senior vice president of tax and chief accounting officer at Cigna, said in a July letter to the FASB.

“We agree with the Board’s conclusion that the determinative factor should be whether the contracts are still held on the balance sheet as of the standard’s effective date,” she said at the time. Cigna did not immediately respond to a request for comment.

Companies will be required to disclose that they choose to use the relief and describe the transactions to which they are applying it. The rule is set to go into effect for insurers with at least $250 million in publicly traded shares early next year and for privately held and smaller public insurers in early 2025.

Public companies can apply the relief to divestments going back two years, whereas private insurers are limited to deals that took place during the past year.

Write to Mark Maurer at [email protected]

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