The short-duration insurance contract disclosures may create new and different reporting of claim data for insurers.

1. FASB issues enhancements to disclosure
requirements for insurers
What happened?
On May 21, the FASB issued its final Accounting Standards Update addressing the
enhanced disclosure requirements for short-duration insurance contracts.
The disclosures are aimed at providing users of financial statements with more transparent
information about an insurance entity’s initial claim estimates and subsequent
adjustments to those estimates, methodologies and judgments in estimating claims, and
the timing, frequency and severity of claims. The new disclosures may require the
accumulation and reporting of new and different groupings of data by insurers for U.S.
GAAP reporting from what is currently captured for U.S. statutory and other reporting
purposes.
This disclosure standard comes a little over a year after the FASB’s decision to end its joint
comprehensive insurance project with the IASB and focus instead on targeted
improvements to U.S. GAAP. The second component of the revised insurance project,
relating to potential revisions to the valuation of long-duration contracts, is ongoing.
What’s required?
The new disclosures are required for short-duration insurance contracts issued by insurers.
Required annual disclosures include disaggregated, undiscounted incurred and paid claim
information (a claim development table), claim frequency information (unless
impracticable), and the sum of incurred-but-not-reported (IBNR) liabilities plus expected
development on reported claims. This information should be presented by accident year,
for the number of years for which claims typically remain outstanding, but need not exceed
10 years. All insurers, with the exception of health insurers, will also need to disclose the
historical average annual percentage payout of incurred claims (claims duration)
calculated using the same number of accident years as the claim development table. Health
insurers are instead required to separately disclose the IBNR component of the liability for
unpaid claims in interim and annual reporting periods.
Throughout the Board’s deliberations, preparers and audit firms raised questions about
potential independence complexities that could arise if auditing up to ten years of
information. These questions led the Board to require only the current year claim
development to be part of the basic financial statements. The claim development table for
prior years and the claims duration disclosure will be required supplementary information,
or RSI. Under U.S. auditing standards, RSI is not a part of the basic financial statements
and the auditor’s opinion on the basic financial statements does not cover RSI; however,
the auditor does need to apply certain limited procedures to RSI.
In determining the level of disaggregation for required claim development information,
insurers should consider how their liabilities for unpaid claims and claim adjustment
expenses have been presented for other purposes, including outside of the financial
No. US2015-15
May 22, 2015
At a glance
FASB enhanced
disclosure requirements
for short-duration
insurance contracts may
prove challenging for
some insurers.
National Professional Services Group | CFOdirect Network – www.cfodirect.pwc.com In brief 1

2. statements (e.g., earnings releases, annual or statutory reports) and information reviewed
by chief operating decision makers. Examples of categories of disaggregation for preparers
to consider include by type of coverage, geography, reportable segment, market or type of
customer, and claim duration.
The roll forward of the liability for unpaid claims and claim adjustment expenses that is
required annually under current guidance will now be required in both interim and annual
reporting periods (and on a disaggregated basis for health insurers). Information relating
to significant changes in estimation methodologies and assumptions, including reasons for
the change and financial statement impacts, will be required annually.
To the extent claim liabilities are discounted, new disclosure requirements include
disclosure of the aggregate amount of the discount deducted from the liability and the
interest accretion recognized for each income statement period presented.
Upon transition, the claims development table need not exceed five years if presenting
prior years’ information is deemed impractical. An additional year should be added to the
disclosure each subsequent year until up to ten years are presented.
Why is this important?
The new standard concludes the FASB’s revisions to current U.S. GAAP for short-duration
insurance contracts by enhancing disclosure requirements, rather than revising short-
duration insurance contract accounting. Although some of the information required is
based on current U.S. statutory reporting requirements, the level of disaggregation and
presentation is different.
From a timing standpoint, U.S. GAAP reporting often precedes U.S. statutory reporting
requirements, which will require the presentation of this information in a compressed
timeframe. Similarly, global insurers may not have prepared this level of reporting for
their foreign operations. Processes and systems will likely need to be updated to capture
the data in a new level of detail and categorization.
In addition to determining the appropriate level of disaggregation for the claim
development tables, insurers will also need to select consistent methodologies for
reflecting the impact of foreign exchange fluctuations and significant changes to their
business (e.g., acquisitions and dispositions) in those tables.
What's next?
The enhanced disclosures will be effective for public business entities for annual reporting
periods beginning after December 15, 2015 (i.e., year end 2016 for calendar year end
entities), and interim reporting periods thereafter. Non-public business entities will have a
one year deferral (i.e., year end 2017 for calendar year end entities). Early application is
permitted.
Questions?
PwC clients who have questions about this
In brief should contact their engagement
partner. Engagement teams who have
questions should contact the Financial
Instruments team in the National
Professional Services Group (1-973-236-
7803).
Authored by:
Christopher Irwin
Partner
Phone: 1-973-236-4743
Email: christopher.g.irwin@us.pwc.com
Sal Volpe
Senior Manager
Phone: 1-973-236-5130
Email: salvatore.volpe@us.pwc.com
Mary Saslow
Managing Director
Phone: 1-860-241-7013
Email: mary.saslow@us.pwc.com
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