The following table identifies the changes made to this Subtopic.
This Subtopic provides guidance to insurance entities on accounting for and financial reporting of a premium deficiency on insurance contracts. The guidance in this Subtopic is presented in the following three Subsections:
- a
General
- b
Short-Duration Contracts
- c
Long-Duration Contracts.
The Short-Duration Contracts Subsections of this Subtopic provide guidance to insurance entities on accounting for and financial reporting of a premium deficiency on short-duration insurance contracts.
The Long-Duration Contracts Subsections of this Subtopic provide guidance to insurance entities on accounting for and financial reporting of a premium deficiency on long-duration insurance contracts.
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section
944-10-15.
The Short-Duration Contracts Subsections follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Section, with specific instrument qualifications noted below.
The guidance in the Short-Duration Contracts Subsections of this Subtopic applies only to short-duration contracts. See the
Short-Duration Contracts Subsection of Section 944-20-15 for a discussion of what constitutes a short-duration contract.
The Long-Duration Contracts Subsections follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Section, with specific instrument qualifications noted below.
The guidance in the Long-Duration Contracts Subsections of this Subtopic applies to long-duration contracts,
except for the liability for future policy benefits for traditional and limited-payment contracts subject to the guidance in paragraph 944-40-25-11. Paragraph 944-30-35-63 specifies that the present value of future profits relating to insurance (including traditional and limited-payment) and reinsurance contracts acquired is subject to premium deficiency testing in accordance with the provisions of this Subtopic (see paragraph 944-805-35-3). See the
Long-Duration Contracts Subsection of Section 944-20-15 for a discussion of what constitutes a long-duration contract.
Insurance contracts shall be grouped consistent with the entity's manner of acquiring, servicing, and measuring the profitability of its insurance contracts to determine if a premium deficiency exists.
A premium deficiency shall first be recognized by charging any unamortized acquisition costs to expense to the extent required to eliminate the deficiency.
If the premium deficiency is greater than unamortized acquisition costs, a liability shall be accrued for the excess deficiency.
A premium deficiency, at a minimum, shall be recognized if the aggregate liability on an entire line of business is deficient. In some instances, the liability on a particular line of business may not be deficient in the aggregate, but circumstances may be such that profits would be recognized in early years and losses in later years. In those situations, the liability shall be increased by an amount necessary to offset losses that would be recognized in later years.
If the conditions in paragraph
944-60-25-7 exist, an entity shall determine the
liability for future policy benefits using revised assumptions as the remainder of the present value of future payments for benefits and related settlement costs (determined using revised assumptions based on actual and anticipated experience) minus the present value of future gross premiums (also determined using revised assumptions based on actual and anticipated experience). An insurance entity shall disclose in its financial statements whether it considers anticipated investment income in determining if a premium deficiency relating to short-duration contracts exists.
For annual reporting periods, and to the extent required by Topic 270 on interim reporting, an insurance entity shall disclose the following: - a
The amount of a liability that is established as a result of a premium deficiency and loss recognition testing determined in accordance with paragraphs and a description of the factors that led to the establishment of the liability - b
Information about the methodology used when performing premium deficiency testing in accordance with paragraphs - c
Whether the entity considered anticipated investment income when performing premium deficiency testing in accordance with paragraphs and, if so, what that assumption was.
(P) December 16, 2027; (N) December 16, 2028
270-10-65-1For interim and annual reporting periods, an insurance entity shall disclose the following: - a
The amount of a liability that is established as a result of a premium deficiency and loss recognition testing determined in accordance with paragraphs and a description of the factors that led to the establishment of the liability - b
Information about the methodology used when performing premium deficiency testing in accordance with paragraphs - c
Whether the entity considered anticipated investment income when performing premium deficiency testing in accordance with paragraphs and, if so, what that assumption was.