For each accident year presented in the claims development tables, for the most recent reporting period presented, the insurer is required to disclose the following information as an accompanying disclosure to the annual claims development tables:

Because insurers have various methodologies for determining the IBNR+ and claim frequency information, potentially even within the same entity for different categories of claims development tables, a description of the methodologies used for determining these amounts is required for each table. An explanation of significant changes in the methodologies used for determining both the IBNR+ amounts and claim frequency amounts is also required.

As differences may exist in how claim frequency is measured, the required disclosures include whether claim frequency is measured by claim event or individual claimant, and how the insurer considers claims that do not result in a liability (e.g., those below a deductible). For example, a car accident with three claimants could be considered one loss event (i.e., a single claim count) or three (one for each claimant). Separately, an aggregate high deductible policy will have a large number of losses payable by the insured prior to reaching the insurer’s attachment point. In such cases, some insurers may consider claims under the deductible to be reported claims, since they may develop into the insured layer over time, while other insurers may only consider claims in the insured layer as reported claims.

Where impracticable to disclose claim frequency information, an insurer is required to disclose this fact and the reason why the disclosure is impracticable. Impracticable means that after making every reasonable effort to do so, an entity is unable to apply the requirement. For example, impracticable situations may include assumed reinsurance or participation in residual market pools, where an entity does not have access to claim frequency information.

Claim frequency disclosures should be disaggregated at the same level as the claims development table disclosures, which could prove challenging in certain situations. An entity chooses to disaggregate at a product level could define claim frequency. However, if a category is based on geographical location, which may include both direct and assumed business, and various product lines, an entity may determine that obtaining the quantitative claim frequency information is impracticable.

While the FASB’s objective was to provide information to allow users to calculate average severity of reported claims and to compare that information between insurers, this goal may not be achieved in practice. The IBNR+ amount will typically be derived by subtracting “known case reserves” from total incurred claim liabilities. However, “known case reserves” is not a defined accounting term in US GAAP and thus insurers may measure them differently. For example, claims adjusters may establish claims in dispute at a small dollar amount based on litigation concerns or to incentivize claim adjudication behavior. In other instances, claim adjusters may set known case reserves based on expected modes, probable minimums, or probable maximums. In addition, because the disclosure was changed from including claim count to claim frequency, the amount disclosed might be a percentage (e.g., number of claims per insured vehicle). Therefore, it may not be possible to calculate severity from the disclosed information.

The guidance does not specifically address how the impact of business modifications (e.g., acquisitions, disposals, commutations, spin-offs, retroactive reinsurance agreements, other means to enter or exit business) or foreign currency translation should be reflected in the development table information. The AICPA Insurance Expert Panel explored the appropriate acceptable alternatives and received feedback from the SEC and FASB staff as to which alternatives to business modifications and foreign currency would be acceptable.

The claims development information for all periods preceding the most recent reporting period and the historical claims payout percentage disclosure will be considered required supplementary information (RSI).

The guidance does not prescribe a particular location for RSI, which may be presented as a supplementary schedule outside of the basic financial statements, with only the current period information included in the notes to the financial statements. Alternatively, RSI may be presented within the notes to the financial statements, accompanied by a clear distinction of what is required supplementary information, such as labeling the RSI as unaudited.

Business modifications can distort claims development for a user. For example, in a business combination, including the acquired business by accident year in subsequent years' tables but not prior years' could make it appear that there is adverse development if the acquired business is material. Similarly, in a disposition, if the table is not restated to remove amounts relating to disposals, the table could be distortive in subsequent post-disposal periods given that cumulative amounts relating to the disposed business would be static, thus inappropriately tempering any development on the remaining business.

For business combinations, the SEC staff noted that a retrospective approach would best achieve the disclosure objectives of the guidance by presenting the acquiree's historical incurred and paid accident year claim information in its claims development tables for all periods presented and related disclosures. In applying this approach, it would be appropriate to either present the incurred and paid claim information of the acquiree separately or combined with the claims development information of the acquirer using the disaggregation principles as required by the guidance. The SEC staff noted that a prospective approach, where the incurred and paid accident year claim information of the acquiree is presented separately from the acquirer as of the acquisition date and in subsequent periods in a separate table or tables as appropriate, could meet the disclosure objectives of the guidance. Under this method, the acquired liabilities as of the acquisition date would be presented in the fiscal year that includes the acquisition date by individual accident year in the incurred section of a table, with subsequent activity presented separately in the incurred and paid sections of that table.

For dispositions, the SEC staff noted that a retrospective approach would be consistent with the disclosure objectives of the guidance. In this approach, an entity would exclude incurred and paid claims information for the disposed business from the claims development tables for all years presented (i.e., exclude the disposed business from prior and current periods' rows and columns). In addition, the SEC noted it would be inappropriate to present a reduction in the unpaid claim liabilities relating to dispositions as a net reduction to amounts in the incurred activity or alternatively a net increase in the amounts in the paid claims activity in the year of disposition column.

Foreign currency should be presented to result in an “apples to apples” comparison for each accident year in order to have a useful year by year comparison of claims development information. The SEC staff noted that an approach which uses current year-end balance sheet rate to translate all amounts in the table for all periods presented would be consistent with the disclosure objectives of ASC 944, as it would eliminate the effects of changes in foreign currency translation rates from the incurred and paid claims information in the claims development tables. They noted that another approach that includes separate claims development tables for each functional currency would also be consistent with the objectives of the standard. Finally, the SEC staff noted that a presentation that did not use the same exchange rate for all of the data in the table, that is for all accident years and for both incurred and paid, would be inconsistent with the requirements of the standard.