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12.9 Disclosures: investments in insurance contracts
Publication date: 31 May 2022
us Loans & investments guide
ASC 325-30 provides guidance on the accounting for investments in insurance contracts.
For investments in life insurance contracts that do not meet the definition of life settlement contracts, the policy holder should disclose contractual restrictions on the ability to surrender the policy. Additional presentation guidance and disclosures requirements are provided for life settlement contracts.
12.9.1 Presentation of life settlement contracts
As discussed in LI 5, life settlement contracts can be accounted for using the fair value method or the investment method. On the balance sheet, a reporting entity should report its investments that are remeasured at fair value separate from those accounted for under the investment method. This can be achieved either by presenting separate line items for each or by aggregating all investments in life settlement contracts into one line item and parenthetically disclosing the amount of contracts accounted for under the fair value method.
On the income statement, ASC 325-30-45-2 states that the amount recognized upon the death of the insured should be recognized in earnings, but it does not provide specific guidance on the appropriate income statement classification. The income is typically presented in other income or net investment income.
A reporting entity should separately present its investment income from investments in life settlement contracts accounted for under the two different measurement models on the face of the income statement. This can be achieved either by displaying separate line items on the income statement, or by presenting the aggregate investment income for life settlement contracts and parenthetically disclosing the investment income from those contracts accounted for under the fair value method.
For investments accounted for under the fair value method, premiums paid and life insurance proceeds received should be classified in the same line as the changes in fair value of those investments.
For presentation on the statement of cash flows, see FSP 6.8.22.
12.9.2 Disclosures for life settlement contracts
A reporting entity should disclose its accounting policy for life settlement contracts (including the classification of related cash flows).
ASC 325-30-50-3 clarifies that the specific disclosure requirements for life settlement contracts do not eliminate disclosure requirements in other topics, including those relating to fair value (see LI 12.8.1).
Regardless of the method elected to account for life settlement contracts, a reporting entity should disclose the following, based on the remaining life expectancy for each of the first five succeeding years from the date of the statement of financial position and thereafter, as well as in the aggregate:
- The number of life settlement contracts
- The carrying value of the life settlement contracts
- The face value (death benefits) of the life insurance policies underlying the contracts
If the fair value method is used, the entity must also disclose the reasons for significant changes in the disclosure items referenced above.
Disclosures for life settlement contracts accounted for under the investment method
A reporting entity that has investments for life settlement contracts accounted for under the investment method should disclose, as of the date of the most recent statement of financial position presented, the life insurance premiums anticipated to be paid for each of the five succeeding fiscal years to keep the life settlement contracts in force.
If the reporting entity becomes aware of new or updated information that causes it to change its expectations on the timing of the realization of proceeds from the investments in these types of contracts, it should disclose the nature of the information and the related effect on the timing of the realization of proceeds. Similarly, the reporting entity should disclose significant changes to the number or carrying value of life settlement contracts or the face value of the life insurance contracts underlying the contracts.
Disclosures for life settlement contracts accounted for under the fair value method
A reporting entity that has investments in life settlement contracts accounted for under the fair value method should disclose the methods and significant assumptions used to estimate the fair value, including any mortality assumptions.
The entity should disclose the reasons for changes in its expectation of the timing of the realization of the investments in life settlement contracts.
For each reporting period presented in the income statement, a reporting entity should also disclose:
- The gains or losses recognized during the period on investments sold during the period
- The unrealized gains or losses recognized during the period on investments that are still held at the date of the statement of financial position
PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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