The Financial Accounting Standards Board issued an accounting standards update that aims to improve the transition requirements in its guidance around long-duration insurance.
ASU 2018-12 focused on improving the financial reporting of long-duration contracts issued by insurance entities, and required those entities to apply a retrospective transition method as of the beginning of the earliest period presented, or the beginning of the prior fiscal year, if early application is chosen.
Stakeholder feedback suggested that applying that guidance to contracts that were derecognized because of a sale or disposal before the LTDI effective date did not provide decision-useful information, and could create major operability challenges for insurance entities.
In response to that feedback, ASU 2022-5 amends the LDTI transition guidance so insurance entities can make an accounting policy election to exclude certain contracts or legal entities from applying the guidance when, as of the LDTI effective date:
- The insurance contracts have been derecognized because of a sale or disposal; and,
- The insurance entity has no significant continuing involvement with the derecognized contracts.
