2. Add the following new Master Glossary terms, with a link to transition paragraph 944-40-65-1, as follows:

The year in which a covered event (as defined by the terms of the contract) occurs.

Claims related to the cost of medical treatments (other than claims related to liability insurance that covers claims against the insured for injury of or by others, such as, but not limited to, workers' compensation, disability, and general liability insurance).

3. Amend paragraph 270-10-50-7, with a link to transition paragraph 944-40-65-1, as follows:

Disclosure

270-10-50-7 The following may not represent all references to interim disclosure:

4. Amend paragraphs 944-40-50-1 and 944-40-50-3 through 50-5, supersede paragraph 944-40-50-2, and add paragraphs 944-40-50-4A through 50-4I and related headings, with a link to transition paragraph 944-40-65-1, as follows:

944-40-50-1

Insurance entities

An insurance entity shall disclose in

their

its financial statements the basis for estimating the liabilities for unpaid {add glossary link to 2nd definition}claims{add glossary link to 2nd definition} and claim adjustment expenses.

944-40-50-3 For annual and interim reporting periods

each fiscal year for which an income statement is presented

, all of the following information about the liability for unpaid claims and {add glossary link}claim adjustment expenses{add glossary link} shall be

disclosed

presented in a tabular rollforward:

In addition, an insurance entity shall disclose the

The

reasons for the change in incurred claims and claim adjustment expenses recognized in the income statement attributable to insured events of prior fiscal years and should indicate whether additional premiums or return premiums have been accrued as a result of the prior-year effects. [Content amended as shown and moved from (d)]

944-40-50-4 For annual reporting periods, an insurance entity

Insurance entities

shall disclose management's policies and methodologies for estimating the liability for unpaid claims and claim adjustment expenses for difficult-to-estimate liabilities, such as any of the following:

944-40-50-4A For health insurance claims, an insurance entity shall aggregate or disaggregate the information in paragraph 944-40-50-3 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 (see paragraphs 944-40-55-9A through 55-9C).

944-40-50-4B For annual reporting periods, an insurance entity shall disclose in a tabular format, as of the date of the latest statement of financial position presented, undiscounted information about claims development by accident year, including separate information about both of the following on a net basis after risk mitigation through reinsurance:

The disclosure about claims development by accident year should present information for the number of years for which claims incurred typically remain outstanding, but need not exceed 10 years including the most recent reporting period presented. All periods presented in the disclosure about claims development that precede the most recent reporting period shall be considered supplementary information. For the most recent reporting period presented, the disclosure about claims development shall include the total net outstanding claims for accident years not separately presented as part of the claims development (see paragraph 944-40-55-9E).

944-40-50-4C For annual reporting periods, an insurance entity shall reconcile the disclosure about incurred and paid claims development information to the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses for the most recent reporting period presented, with separate disclosure of reinsurance recoverable on unpaid claims (see paragraph 944-40-55-9E).

944-40-50-4D For annual reporting periods, an insurance entity shall quantitatively disclose the following for each accident year presented in the disclosures about incurred claims development (see paragraph 944-40-55-9E) for the most recent reporting period presented:

944-40-50-4E For interim and annual reporting periods, for health insurance claims, an insurance entity shall disclose the total of incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses.

944-40-50-4G For annual reporting periods, for all claims except health insurance claims, an insurance entity shall disclose as supplementary information the historical average annual percentage payout of incurred claims by age, net of reinsurance (that is, history of claims duration by age), as of the most recent reporting period. This information shall be disclosed for the same number of accident years presented in the disclosures required by paragraph 944-40-50-4B (see paragraphs 944-40-55-9F through 55-9G).

944-40-50-4H An insurance entity shall disclose the information required by paragraphs 944-40-50-4B through 50-4G and 944-40-50-5 in a manner that allows users to understand the amount, timing, and uncertainty of cash flows arising from the liabilities. An insurance entity shall aggregate or disaggregate the disclosures in paragraphs 944-40-50-4B through 50-4G and 944-40-50-5 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 (see paragraphs 944-40-55-9A through 55-9C). An insurance entity need not provide disclosures about claims development for insignificant categories; however, balances for insignificant categories shall be included in the reconciliation required by paragraph 944-40-50-4C.

944-40-50-4I For annual reporting periods, an insurance entity shall disclose information about significant changes in methodologies and assumptions used in calculating the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements for the most recent reporting period presented.

944-40-50-5 For liabilities for unpaid claims and claim adjustment expenses that are presented at present value in the financial statements, an insurance entity

Insurance entities

shall disclose

both

all of the following in its

their

annual financial statements:

5. Add paragraphs 944-40-55-9A through 55-9G and their related headings and the Subsection title, with a link to transition paragraph 944-40-65-1, as follows:

> > Information about the Liability for Unpaid Claims and Claim Adjustment Expenses

944-40-55-9A Paragraphs 944-40-50-4A and 944-40-50-4H require an insurance entity to aggregate or disaggregate certain disclosures 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 to allow users to understand the amount, timing, and uncertainty of cash flows arising from contracts issued by insurance entities. Consequently, the extent to which an insurance entity's information is aggregated or disaggregated for the purposes of those disclosures depends on the facts and circumstances that pertain to the characteristics of the liability for unpaid claims and claim adjustment expenses.

944-40-55-9B When selecting the type of category to use to aggregate or disaggregate disclosures, an insurance entity should consider how information about the insurance entity's liability for unpaid claims and claim adjustment expenses has been presented for other purposes, including all of the following:

944-40-55-9C Examples of categories that might be appropriate include any of the following:

When applying the guidance in paragraphs 944-40-50-4A and 944-40-50-4H, an insurance entity should not aggregate amounts from different reportable segments according to Topic 280.

944-40-55-9D Claim frequency information may be tracked and analyzed by an insurance entity in a variety of ways. For example, an insurance entity may track claim frequency by claim event (such as a car accident), while another entity may track claim frequency by individual claimant (such as the number of individual claimants in a car accident). Also, certain types of insurance coverage, such as excess-of-loss insurance or supplemental insurance, can experience claim activity that does not result in a liability to the insurance entity. This Subtopic does not require a particular methodology. Therefore, to allow users to understand the context of the information presented, an insurance entity should describe qualitatively the methodologies used to determine the quantitative claim frequency information presented. In certain circumstances, such as providing reinsurance on short-duration contracts or participating in residual market pools, an insurance entity may not have access to claim frequency information, in which case it may be impracticable to disclose this information. The insurance entity should disclose that fact and explain why the disclosure is impracticable.

944-40-55-9E The following Example illustrates the information that an insurance entity with one major short-duration product line (homeowners' insurance) would disclose in its 20Y6 financial statements to meet the requirements of paragraphs 944-40-50-4B through 50-4D.

944-40-55-9F An illustrative Example of the supplementary information that an insurance entity would disclose to meet the requirements in paragraph 944-40-50-4G is as follows.

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944-40-55-9G For this illustrative Example, the approach selected by the insurance entity to compute historical claims duration using the information about claims development included in paragraph 944-40-55-9F is as follows. These calculations are for illustrative purposes only and would not be included in the disclosure.

View image

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6. Add paragraph 944-40-65-1 and its related headings as follows:

944-40-65-1 The following represents the transition and effective date information related to Accounting Standards Update No. 2015-09, Financial Services—Insurance (Topic 944): Disclosures about Short-Duration Contracts:

a. A public business entity shall apply the pending content that links to this paragraph for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016.

b. All other entities shall apply the pending content that links to this paragraph for annual periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017.

c. Early application of the pending content that links to this paragraph is permitted.

d. The pending content that links to this paragraph shall be applied retrospectively, except for those requirements that apply only to the current period.

e. In the year of initial application of the pending content that links to this paragraph, an insurance entity need not disclose information about claims development for a particular category that occurred earlier than five years before the end of the first period in which the pending content that links to this paragraph is first applied if it is impracticable to obtain the information required for disclosure. For each subsequent year following the year of initial application of the pending content that links to this paragraph, the minimum required number of years will increase by at least 1 year but need not exceed 10 years, including the most recent period presented in the statement of financial position.

7. Amend paragraph 270-10-00-1, by adding the following item to the table, as follows:

270-10-00-1 The following table identifies the changes made to this Subtopic.

8. Amend paragraph 944-40-00-1, by adding the following items to the table, as follows:

944-40-00-1 The following table identifies the changes made to this Subtopic.

BC3. In October 2008, the Board undertook the insurance contracts project jointly with the IASB with an objective of developing common, high-quality guidance that would establish the principles that an entity would apply in the recognition, measurement, presentation, and disclosure of insurance contracts (including reinsurance) even if the contracts are not issued by an insurance entity. The Board deliberated issues together with the IASB because insurance is a global industry with many insurance entities operating (mostly through subsidiaries) in numerous countries. Many analysts and investors compare those entities, and the comparison can be more difficult in the presence of different accounting standards that are not easily reconcilable. In addition, the Board noted that there were several areas for potential improvement and areas in which there were inconsistencies between existing GAAP for contracts issued by insurance entities and more recently issued guidance. Those included, among other items, reflection of the time value of money for property, liability, and short-term health-insurance-contract liabilities in which the payout occurs more than a year after the insured event. In addition, the Board identified several areas in which diversity exists in practice and viewed this as an opportunity to mitigate, if not eliminate, that diversity.

BC4. In July 2010, the IASB issued an Exposure Draft, Insurance Contracts (2010 IASB Exposure Draft). During the development of the 2010 IASB Exposure Draft, most of the discussions about the proposed insurance accounting approaches were held jointly with the FASB. Although the Boards reached common decisions in many areas, they reached different conclusions in others. The FASB sought additional input from its stakeholders before issuing an Exposure Draft, in large part to assess whether the proposed new accounting guidance would represent a sufficient improvement to GAAP, which would justify issuing new guidance.

BC5. In September 2010, the FASB issued a Discussion Paper, Preliminary Views on Insurance Contracts (2010 Discussion Paper), to seek such input. The Board received 79 comment letters in response to the 2010 Discussion Paper and, in subsequent discussions, considered relevant recommendations and suggestions from those comment letters and the 253 comment letters on the 2010 IASB Exposure Draft.

BC6. In June 2013, after jointly deliberating many of the issues arising from the 2010 Discussion Paper and the 2010 IASB Exposure Draft, the Board issued a proposed Accounting Standards Update, Insurance Contracts (Topic 834) (2013 proposed Update), and the IASB issued a revised Exposure Draft, Insurance Contracts (revised 2013 IASB Exposure Draft).

BC7. The objectives of the amendments in the 2013 proposed Update were to (a) increase the decision usefulness of the information about a reporting entity's insurance liabilities, including the nature, amount, timing, and uncertainty of cash flows related to those liabilities and the effect on the statement of comprehensive income, and (b) provide comparability, regardless of the type of entity issuing the contract. The 120-day comment period on the amendments in the 2013 proposed Update ended on October 25, 2013, and the Board received 206 comment letters. The Board also conducted extensive outreach with insurance industry trade groups, preparers, auditors, and financial statement users.

BC8. Throughout the insurance project, the Board carefully evaluated the costs and benefits of various paths forward to improve financial reporting for short-duration contracts. During its redeliberations, the Board considered this feedback, which primarily included concerns about the following:

BC9. The Board addressed those concerns during redeliberations of the amendments in the 2013 proposed Update. The Board decided that the costs of changing the recognition, measurement, and presentation guidance for short-duration contracts would not justify the benefits, especially if the guidance did not substantially converge with the 2013 IASB Exposure Draft. Therefore, the Board decided that for short-duration contracts, the insurance project should focus on making targeted improvements to existing disclosure requirements. Additionally, the Board decided to limit the scope of the project to insurance entities within the scope of Topic 944.

BC10. During redeliberations of targeted improvements to existing disclosure requirements, the Board considered the feedback received and decided not to require certain disclosures, such as the nature and extent of risks arising from contracts issued by insurance entities and a quantitative sensitivity analysis of changes in insurance balances, because the benefits did not justify the costs. Additionally, the Board decided to retain certain disclosures in the 2013 proposed Update, such as incurred and paid claims development tables and disclosure of amounts presented at present value. As part of the redeliberation process, Board members and staff performed additional outreach with many stakeholders that noted that additional information about (a) claims frequency, severity, and duration, (b) significant changes in methodologies and assumptions, and (c) health insurance claims would increase the transparency of the liability for unpaid claims and claim adjustment expenses and provide financial statement users with decision-useful information. In light of this feedback, the Board decided to require these additional disclosures.

BC11. As the redeliberation process continued, Board members and staff performed further outreach with financial statement users, preparers, auditors, and regulators to assess the costs and benefits of the disclosures in this Update. On the basis of that feedback and the feedback received throughout the project, the Board proposed disclosures that would align more closely with information that insurance entities prepare internally or for statutory reporting requirements. Those disclosures proposed by the Board also would align with information that could be disclosed without disproportionate cost to preparers to respond to financial statement users' requests for additional information about and transparency of the liability for unpaid claims and claim adjustment expenses.

BC12. As with any new guidance, there will be costs to implement the disclosure requirements in this Update. The magnitude of the following costs will vary based on the extent of an insurance entity's international operations and the diversity of its product offerings:

BC13. However, the Board also noted that a significant amount of the data needed for the financial statement note disclosures already should be available to entities because of statutory reporting requirements and that this will mitigate some of the cost increases described in paragraph BC12. For example, the Board`s decision not to exclude expected development on reported claims from the disclosure of the total of incurred-but-not-reported liabilities plus expected development on reported claims is consistent with the statutory definition of incurred-but-not-reported liabilities and allows insurance entities to leverage established statutory processes.

BC14. The Board considered those costs in the analysis of the benefits and costs for the guidance as a whole and in relation to specific disclosure requirements when making its decisions. In its redeliberations, the Board also considered the feedback received about operability issues with auditing the required disclosures, including that:

BC15. During its redeliberations, the Board acknowledged the potential for overlap with certain of the U.S. Securities and Exchange Commission's (SEC) requirements, including the SEC's Management's Discussion and Analysis (MD&A) disclosures, specifically those required by the SEC Securities Act Industry Guide No. 6, Disclosures Concerning Unpaid Claims and Claim Adjustment Expenses of Property-Casualty Insurance Underwriters. During its deliberations on this project, the Board's intention was to create new, complementary disclosure requirements that provide meaningful incremental information to financial statement users beyond those provided by the SEC.

BC16. As discussed in paragraph BC17, financial statement users currently gather partial unaudited information from statutory filings and supplementary earnings packages to perform their analyses. Because statutory information is generally only available for domestic insurance entities and MD&A disclosures are aggregated at the consolidated level, significant effort is required to compile what is still incomplete information. The Board acknowledges the considerable benefits to financial statement users of the amendments in this Update that require insurance entities to disclose information that is useful to analyze insurance entities. Overall, the Board concluded that the improvements to financial reporting including (a) increased transparency of significant estimates made in measuring liabilities that arise from issued contracts, (b) improved comparability of insurance entities' financial statements, and (c) more decision-useful information about the liability for unpaid claims and claim adjustment expenses justify the costs of implementing the disclosure requirements in this Update.

BC17. Many preparers representing property and casualty insurance entities that commented on the 2013 proposed Update supported disclosures of claims development tables to provide financial statement users with information to better understand an insurance entity's ability to underwrite and anticipate costs associated with claims. Many financial statement users commented that disclosures of incurred and paid claims development tables would increase the transparency of the liability for unpaid claims and claim adjustment expenses by facilitating an analysis of initial liability estimates and subsequent adjustments to those estimates. Financial statement users also noted that information about the liability for unpaid claims and claim adjustment expenses is available from statutory filings and MD&A in Form 10-K but that the usefulness of this information is limited by the following:

BC18. In light of this feedback, the Board decided to require all insurance entities that issue short-duration contracts to disclose incurred and paid claims development tables that include information for the number of years for which claims incurred typically remain outstanding, but for which the disclosure need not exceed 10 years, including the most recent reporting period presented. All claims development years should be presented together to best communicate development trends to users. The Board noted that, on the basis of user feedback, the most useful way to present the disclosures about claims development is by accident year and disaggregated in accordance with the guidance discussed in paragraphs BC31–BC34.

BC19. In redeliberating the guidance for disclosures about claims development, the Board considered whether it should require presentation of only 2 or 3 years of information about claims development or whether it should require presentation of up to 10 years of information about claims development. The Board concluded that the benefits of requiring the presentation of up to 10 years of information about claims development justify the costs for the following reasons:

BC20. The Board acknowledged that requiring up to 10 years of information can have repercussions on auditor independence and could add significant costs and complexities to auditor independence assessments of predecessor and successor auditors, especially when there are business combinations. However, as discussed in paragraph BC19, the Board concluded that the benefits of providing up to 10 years of information justify the costs, and, therefore, on the basis of discussions with auditors and regulators, the Board decided that all years presented in the claims development tables that precede the most recent reporting period should be considered supplementary information. This decision is in response to independence concerns about auditing all of the years included in the claims development tables and leveraging existing, specific audit guidance that defines the procedures to be applied by independent auditors on required supplementary information. The Board does not prescribe a particular location for presenting supplementary information. In practice, required supplementary information may be presented as a supplementary schedule outside the audited notes or within financial statement notes accompanied by a clear distinction between supplementary information and other disclosed information. The Board also noted that entities are not precluded from having the entire claims development tables audited.

BC21. The Board decided that the reconciliation of the disclosure about incurred and paid claims development to the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses for the most recent reporting period presented should include separate disclosure of reinsurance recoverable on unpaid claims. That disclosure should be disaggregated in the same way that an insurance entity disaggregates its disclosure about claims development (see paragraphs BC31–BC34) because it will provide greater transparency of an insurance entity's reinsurance strategies and changes in those strategies.

BC22. Financial statement users commented that understanding claims frequency and severity is very important for understanding property and casualty insurance companies and that additional disclosures about claims frequency and severity would increase the transparency of an insurance entity's estimation practices and claims experience. Financial statement users currently have access to claims frequency information included in statutory Schedule P filings, but because this information is only available on a legal entity basis for entities domiciled in the United States, significant effort is required to compile and aggregate the information. The Board, therefore, decided to require an insurance entity to disclose cumulative claims frequency information for each accident year presented in the disclosures about incurred claims development, unless it is impracticable to do so. The impracticability exception addresses situations for which claim frequency information is not available, such as, but not limited to, assumed reinsurance or residual market pools.

BC23. To enable users to interpret claim frequency information properly, the Board also decided that an insurance entity should disclose its methodologies for calculating cumulative claim frequency information as well as any significant changes to those methodologies. The disclosed methodologies would allow users to understand how an insurance entity calculated frequency by clarifying whether frequency information is measured by claim event or by individual claimant (as well as why its approach provides better information) and how the insurance entity considered claims that did not result in a liability.

BC24. The Board noted that financial statement users can use the information about claims frequency and the incurred claims development tables to calculate the average severity of reported claims. However, to calculate the average severity of reported claims, liabilities for claims incurred but not reported should be excluded. Therefore, the Board decided to require that an insurance entity present in the incurred claims development tables separate information about the total of incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. At present, users and preparers generally understand incurred-but-not-reported liabilities as including expected development on reported claims; therefore, the Board decided to include expected development on reported claims in the disclosure of the total of incurred-but-not-reported liabilities plus expected development on reported claims to avoid introducing a new incurred-but-not-reported metric. The Board's decision will align the incurred-but-not-reported definitions in GAAP and statutory reporting. And, a requirement that an insurance entity describe the disclosure as the total of incurred-but-not-reported liabilities plus expected development on reported claims makes it clear that the number is not just incurred-but-not-reported liabilities. Preparers expressed concern that the various reserving methodologies used by insurance entities will result in inconsistent disclosure of incurred-but-not-reported liabilities plus expected development on reported claims across the industry as well as across different business lines within a company. To address those concerns, the Board decided that an insurance entity should disclose its methodologies for determining the presented amounts of incurred-but-not-reported liabilities plus expected development on reported claims as well as any significant changes to those methodologies.

BC25. The Board decided that an insurance entity should disclose the average annual percentage payout of claims (the history of claims duration) because disclosures about the historical timing of claims payments will provide financial statement users with information that can be used in independent discounting analyses. Disclosures about the historical timing of claims payments also will provide insight into an insurance entity's claim settlement practices. The Board observed that the information required to calculate the history of claims duration is included in the incurred and paid claims development tables but that the disclosure should be provided to reduce the burden on financial statement users, reduce any potential diversity in calculating claims duration, and increase financial statement comparability. Because the calculations are based on supplementary information included in the claims development tables, the resulting history of claims duration also is considered to be supplementary information. Some preparers expressed concern that the information disclosed, without any further discussion or explanation, may be confusing or misleading to financial statement users. The Board observed that an insurance entity is not precluded from providing additional explanation about the information presented.

BC26. Existing guidance in Topic 944 does not prescribe a method for calculating the liability for unpaid claims and claim adjustment expenses, and insurance entities apply significant judgment when selecting the actuarial methods and assumptions used. Although Topic 250, Accounting Changes and Error Corrections, requires reporting entities to disclose information about changes in accounting principles and estimates and Topic 944 requires insurance entities to disclose reasons for changes in estimates related to insured events of prior fiscal years, the Board noted the absence of a requirement to disclose changes in actuarial methodologies and assumptions. Therefore, the Board decided that an insurance entity should disclose information about significant changes in methodologies and assumptions used in calculating the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements.

BC27. The Board observed that Topic 270, Interim Reporting, requires reporting entities to disclose in interim financial statements the effects of a change in an accounting estimate. However, insurance entities' disclosures about the reasons for changes in the liability for unpaid claims and claim adjustment expenses are not consistent, and, thus, the additional requirement should significantly improve the consistency of the disclosures.

BC28. The Board considered an alternative disclosure about the range of central estimates derived from using multiple actuarial methods to calculate the liability for unpaid claims and claim adjustment expenses. The Board rejected this alternative disclosure because the objective of providing increased transparency of significant estimates made in measuring liabilities that arise from contracts issued by an insurance entity would be achieved by the disclosures described in paragraph BC26. Additionally, the Board expects that significant changes in an insurance entity's method for calculating the liability for unpaid claims and claim adjustment expenses, including changes in the selection of the actuarial methods used to calculate the liability for unpaid claims and claim adjustment expenses, will be disclosed.

BC29. Some financial statement preparers for health insurance entities commented that the benefits would not justify the costs of disclosing up to 10 years of information about claims development for health insurance claims because a significant portion of health insurance claims are typically settled within 1 year. The Board considered whether to exclude health insurance claims from the disclosures about incurred and paid claims development but decided not to because some health insurance claims extend beyond one year and financial statement users have indicated that information about changes in estimates of the liability for unpaid claims and claim adjustment expenses for those claims are decision useful. Additionally, because the disclosure of claims development is required for the number of years for which claims incurred typically remain outstanding but need not exceed 10 years, including the most recent reporting period presented, the Board expects that the disclosure of claims development for health insurance claims will typically include less than 10 years of information.

BC30. The Board decided that health insurance claims should be excluded from the annual disclosure of the history of claims duration because of the very short duration of those claims and because financial statement users focus on claims development in interim periods as well as annually. The Board considered an alternative requirement to disclose the days in claims payable for health insurance claims, which would be calculated as medical claims payable divided by average healthcare expense per day in the period. The Board rejected this alternative mainly because it is an operational metric that does not provide transparent information about the incurred-but-not-reported portion of the liability for unpaid claims and claim adjustment expenses. Instead, the Board decided that the rollforward of the liability for unpaid claims and claim adjustment expenses for health insurance claims should be disaggregated (see paragraphs BC31–BC34) and that the total of incurred-but-not-reported liabilities plus expected development on reported claims for health insurance claims should be disclosed in both interim and annual financial statements, either as a separate disclosure or as a component of the rollforward of the liability for unpaid claims and claim adjustment expenses.

BC31. The liability for unpaid claims and claim adjustment expenses often is a composite amount arising from many insurance policies with different characteristics. This is because insurance entities that issue short-duration contracts provide coverage for events that have different frequencies and severities and, consequently, different amounts and timing of cash flows. Financial statement users explained that understanding the effects of those differences on the liability for unpaid claims and claim adjustment expenses was important to their analyses.

BC32. In light of this feedback, the Board decided that the disclosures of incurred and paid claims development tables, history of claims duration, total of incurred-but-not-reported liabilities plus expected development on reported claims, claims frequency, and the interim and annual rollforward of the liability for unpaid claims and claim adjustment expenses for health insurance claims should be communicated in a manner that allows users to understand the amount, timing, and uncertainty of cash flows arising from its contracts in light of relevant circumstances (such as, but not limited to, business combinations and the effect of foreign currency exchange rate changes). The Board's decision also requires an insurance entity to disaggregate or aggregate disclosures 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.

BC33. The Board decided that useful disaggregation of disclosures depends on the characteristics of the contracts that an insurance entity writes and on various entity-specific factors; therefore, the guidance should not prescribe any specific factor to be used as the basis for disaggregating the disclosures. Instead, the Board decided to specify a principle for providing disaggregated information. The Board noted that specifying a principle will result in useful information for financial statement users because it enables an insurance entity to disaggregate the disclosures into categories that are meaningful for its business. In addition, specifying a principle should result in disaggregation that is neither too aggregated nor too detailed. The Board also noted that an insurance entity should not aggregate amounts from different reportable segments because this would reduce the usefulness of the disclosure.

BC34. The amendments in the 2013 proposed Update would have required that disclosures be disaggregated or aggregated 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 different characteristics, and the amendments would have provided examples of disaggregation categories that would be considered appropriate. Many preparers that commented on that disaggregation requirement indicated that the guidance would result in a significant volume of disclosures, because multiple detailed levels of disaggregation would be required and the level of disaggregation would not coincide with how insurance entities manage their business. In light of this feedback, the Board decided to provide implementation guidance about how to determine the appropriate categories that an insurance entity may use to disaggregate the disclosures to provide useful information while being less burdensome to preparers.

BC35. Topic 944 requires an insurance entity to disclose the carrying amount of claims liabilities that are presented at present value in the financial statements and the range of interest rates used to discount those liabilities. However, there is no requirement to disclose the discount deducted from the liability for unpaid claims and claim adjustment expenses and the effects of interest accretion on the statement of income. To provide better information about liabilities for unpaid claims and claim adjustment expenses that are discounted, the Board decided that for each period presented in the financial statements, an insurance entity should disclose the aggregate amount of discount relating to the time value of money deducted from the liability for unpaid claims and claim adjustment expenses, the amount of interest accretion recognized, and the line items in the statement of comprehensive income in which the interest accretion is classified.

BC36. In developing the disclosure requirements, the Board considered whether to require an insurance entity to disclose the rates that would be used to discount liabilities for unpaid claims and claim adjustment expenses that are not presented at present value in the financial statements. The purpose of the disclosure would be to provide users with management's views about the risks inherent in the liabilities and a starting point to perform independent discounting analyses. The Board ultimately rejected this disclosure for the following reasons:

BC37. The Board decided that an insurance entity should retrospectively apply all disclosure requirements in the amendments in this Update on a comparative basis except for those requirements that apply only to the current period. Retrospective application provides financial statement users with useful trend information across the current period and comparative periods. The Board noted that the disclosures of, and related to, incurred and paid claims development tables as of the most recent reporting period already include information for prior periods, so retrospective application for each reporting period presented would not provide any additional useful information.

BC38. The Board decided not to require an insurance entity that adopts the amendments in this Update to disclose certain information required by Topic 250. Specifically, the Board decided that providing the transition disclosures about (a) the method of applying the change, (b) a description of the indirect effects of a change in accounting principle, (c) the change in the interim period of the change, if issuing interim financial statements, and (d) the annual period of the change would not be applicable because the guidance in the amendments in this Update relates only to disclosures.

BC39. In addition, the Board decided that in the year of initial adoption of the guidance in the amendments in this Update, an insurance entity should be exempt from disclosing more than 5 years of claims development information for a particular category if it is impracticable to obtain the information required for up to 10 years of required disclosure. The Board determined that requiring an insurance entity to go back more than five years to prepare this disclosure, which requires a significant amount of data, could be unduly burdensome. For each subsequent year following the year of initial adoption, the minimum required number of years will increase by at least 1 but need not exceed 10 years, including the most recent reporting period presented in the statement of financial position.

BC40. The Board decided that public business entities should apply the guidance in the amendments in this Update for annual periods beginning after December 15, 2015, and for interim periods within annual periods beginning after December 15, 2016. The Board delayed the interim reporting requirements to the year after the first annual period because preparers noted that they need some time to comply with the disclosure requirements, particularly with the requirement to disclose disaggregated incurred and paid claims development tables, and because auditors noted that they need some time to determine the additional procedures that need to be performed. The Board also decided that there should be a one-year delay for all other insurance entities, because feedback received on the amendments in the 2013 proposed Update indicated that other insurance entities may have limited resources and may need additional time to apply the requirements in the amendments in this Update and learn from public business entities' financial statements. Early application of the amendments in this Update is permitted.

BC41. The Board considered whether to specify different guidance for public business entities and all other entities. Ultimately, the Board decided that the disclosure requirements in the amendments in this Update should apply equally to all insurance entities on the basis that the resulting information is equally relevant to financial statement users of public business entities and other entities.