FASB Tweaks Upcoming Rule on Insurance Contracts to Ease Transition

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The U.S. accounting normal setter allowed insurers that lately offered their long-term insurance business to exclude these from their steadiness sheets once they adjust to a brand new accounting rule on valuing sure contracts.

Wednesday’s transfer by the Financial Accounting Standards Board is aimed toward serving to insurance corporations meet new necessities, that are set to go into impact for big publicly traded companies in early 2023. The FASB in 2019 and 2020 delayed implementing the rule by a yr to give corporations extra time to put together.

Under the rule, corporations should evaluation the assumptions they use to measure the worth of their long-term obligations associated to insurance policies similar to annuities and life insurances and revise them if wanted. Long-term contracts embrace agreements on annuities, endowments and title insurance, whereas short-duration contracts normally cowl property and legal responsibility safety.

Originally, insurers that offered or disposed of their long-term insurance policies would have wanted to apply the brand new accounting rule on valuing sure contracts once they introduced prior intervals. That would have posed a problem for some insurers, as they’d have had to worth contracts they now not possessed.

Companies similar to

Cigna Corp.

,

Assurant Inc.

and

Allstate Corp.

over the previous yr shed their long-term insurance companies, in some instances to cut back losses or focus on different business strains. Assurant in August 2021 offered its funeral insurance business to fellow insurer CUNA Mutual Group for $1.35 billion, adopted by a deal by Allstate in November to unload its life insurance unit to

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Blackstone Inc.,

a private-equity agency. Cigna earlier this yr offered a few of its Asia-Pacific belongings 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 cost for companies, but also because of concerns that [it]…could actually result in confusing and misleading information for investors,” FASB board member Christine Botosan stated Wednesday.

Insurance corporations supported the aid and stated that disposed contracts had been now not related to their present operations or future money flows. Disclosing details about exited contracts, similar to modifications to the beforehand acknowledged achieve or sale, wouldn’t be helpful to buyers and will show extra complicated,

Mary Agoglia Hoeltzel,

senior vice chairman of tax and chief accounting officer at Cigna, stated 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 stated on the time. Cigna didn’t instantly reply to a request for remark.

Companies shall be required to disclose that they select to use the aid and describe the transactions to which they’re making use of it. The rule is about to go into impact for insurers with at the very least $250 million in publicly traded shares early subsequent yr and for privately held and smaller public insurers in early 2025.

Public corporations can apply the aid to divestments going again two years, whereas non-public insurers are restricted to offers that occurred through the previous yr.

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Write to Mark Maurer at Mark.Maurer@wsj.com

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