PwC is pleased to offer our updated Insurance contracts guide addressing accounting by insurance and reinsurance entities for insurance contracts.
This guide summarizes the applicable accounting literature, including relevant references to and excerpts from the FASB’s Accounting Standards Codification (the Codification). It also provides our insights and perspectives, interpretative and application guidance, illustrative examples, and discussion on emerging practice issues. The PwC guides should be read in conjunction with the applicable authoritative accounting literature.
References to US GAAP
Definitions, full paragraphs, and excerpts from the Financial Accounting Standards Board’s Accounting Standards Codification are clearly labelled. In some instances, guidance was cited with minor editorial modification to flow in the context of the PwC Guide. The remaining text is PwC’s original content.
References to other PwC guidance
This guide provides general and specific references to chapters in other PwC guides to assist users in finding other relevant information. References to other guides are indicated by the applicable guide abbreviation followed by the specific section number. The other PwC guides referred to in this guide, including their abbreviations, are:
- Business combinations and noncontrolling interests (BCG)
- Derivatives and hedging (DH)
- Equity method investments and joint ventures (EM)
- Fair value measurements, global edition (FV)
- Financial statement presentation (FSP)
- Foreign currency (FX)
- Loans and investments (LI)
Summary of significant changes
The following is a summary of the noteworthy revisions to the guide since it was first published in October 2019. Additional updates may be made to future versions to keep pace with significant developments.
Revisions made in January 2021
IG 13, Statutory accounting by insurance entities
- IG 13, Statutory accounting by insurance entities, was added to discuss GAAP and statutory differences and new insights related to reinsurance, goodwill, and intercompany transactions.
Revisions made in September 2020
IG 3, Deferred acquisition costs
- Example IG 3-9 was added, which shows an alternative DAC amortization approach that determines the current period amortization taking into account the actual persistency observed in the current period.
IG 5, Long duration liabilities
- Question IG 5-6, Question IG 5-7, Question IG 5-8, and Question IG 5-9 were updated for additional insights into discount rates used for long-duration contracts.
- Question IG 5-23 and Question IG 5-24 were added to address emerging market risk benefit issues.
, Loss recognition (premium deficiency)
- Traditional life present value of future profits loss recognition testing questions related to grouping and discount rates have been moved to IG 12, Business combination considerations.
IG 9, Long duration reinsurance
- IG 184.108.40.206 was updated to include additional insights on calculating the ceded net premium ratio, including details on methods used to develop a constant margin, and to describe the impact on ceded reinsurance of the 100% net premium ratio “cap” and the liability “floor” applicable to the direct contracts.
- Example IG 9-1 was added illustrating the accounting for 100% coinsurance of a block of traditional inforce insurance contracts.
- IG 9.7.1 was enhanced to reflect developing issues and insights related to assumed reinsurance.
IG 10, Presentation and disclosure
- Footnotes in IG 10.3.1.2, Figure IG 10-1 were enhanced to provide more detailed explanations of the line items in the liability for future policy benefits rollforward.
IG 11, Effective date and transition
- IG 11.2 was updated to reflect the FASB’s latest deferral of the effective date of ASU 2018-12, expected to be finalized in late fall of 2020.
- Example IG 11-1 was added to include a numerical example of the accounting at transition and subsequently when the net premium ratio exceeds 100% at the transition date.
- Question IG 11-3 was added and Question IG 11-4 was updated to provide further guidance related to carryover discount rates at transition.
- Question IG 11-7 and Question IG 11-8 were added to address claim liabilities considerations at transition.
- IG 11.3.3 was updated to further address transition date adjustments for limited-payment contracts, and a related decision tree was added as Figure IG 11-2.
- IG 11.3.7 and IG 11.3.8 and Question IG 11-15 were updated to provide more detailed guidance on MRB transition impacts on balances such as the present value of future profits.
- IG 12, Business combination considerations was added, which was formerly located in our Business combinations and noncontrolling interests guide.
This publication has been prepared for general informational purposes, and does not constitute professional advice on facts and circumstances specific to any person or entity. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication. The information contained in this publication was not intended or written to be used, and cannot be used, for purposes of avoiding penalties or sanctions imposed by any government or other regulatory body. PricewaterhouseCoopers LLP, its members, employees, and agents shall not be responsible for any loss sustained by any person or entity that relies on the information contained in this publication. Certain aspects of this publication may be superseded as new guidance or interpretations emerge. Financial statement preparers and other users of this publication are therefore cautioned to stay abreast of and carefully evaluate subsequent authoritative and interpretative guidance.
The FASB Accounting Standards Codification material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, Norwalk, CT 06856, and is reproduced with permission.