Insurance companies are getting even more time to implement a new rule for valuing long-term contracts following a vote by the Financial Accounting Standards Board on Wednesday.
The rule maker, which sets accounting standards for companies and nonprofits in the U.S., in June proposed a delay of another year for the new rule amid the economic harm caused by the coronavirus pandemic. The rule was first delayed by a year last November to give companies more time to modernize their processes for reporting and valuation.
Insurance firms must review assumptions used to measure the value of their long-term contractual obligations and make revisions if needed. Long-term contracts include agreements on annuities, endowments and title insurance. Short-duration contracts usually cover property and liability protection.
Publicly listed insurers, excluding small ones, may now delay implementing the new standard until after Dec. 15, 2022. All others are allowed to wait until after Dec. 15, 2024.
Insurance companies in comment letters to FASB said a delay would give them time to address coronavirus hurdles and adequately prepare for the new standard by, for example, testing internal controls and educating management and investors.
Columbus, Ga.-based insurer
was prepared for another potential delay in the new standard, Chief Financial Officer Max Brodén said. Challenges stemming from the pandemic have forced Aflac to revise its business goals and timelines, including for issues such as implementing new accounting rules, Chief Accounting Officer June Howard wrote in an Aug. 6 letter to FASB.
Principal Financial Group Inc.,
a Des Moines, Iowa-based insurer, is currently developing new valuation models and will update its actuarial systems to comply with the new rule, finance chief Deanna Strable-Soethout said. The delay will be helpful for employees tasked with implementing the rule while working remotely, she added.
FM Global, a Johnston, R.I.-based privately held mutual insurer, will have to make significant changes to its disclosures under the new rule even though it doesn’t issue long-lasting contracts, CFO Kevin Ingram said. “I’d just as soon keep everything the way it is for as long as we possibly can,” he said.
FASB board member Christine Botosan said on Wednesday she hasn’t received convincing evidence showing that insurers are falling behind in their implementation efforts. “Most entities remain on track in their implementation despite the challenges of remote work,” Ms. Botosan said. She was the only one of seven board members voting against the delay.
FASB said it plans to issue documents formalizing the changes later this year.
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