1. FASB Targeted Improvements
Insurance IFRS Seminar
December 2, 2016
Michael Lockerman
Session 29

2. FASB Insurance project overview
Improve and simplify financial reporting requirements
Impacts
FASB and IASB 2013 EDs had proposed fundamental changes to the accounting for insurance contracts
In February 2014, the FASB changed course, toward making targeted improvements to insurer accounting/disclosures:
Q2 2015: ASU issued requiring additional disclosure for short duration contracts, effective 2016
deliberations: Potential targeted accounting changes for long duration contracts; exposure draft issued September 2016
Enhanced disclosures for short duration insurance contracts and targeted improvements to the accounting for long duration insurance contracts.
Talking theory
Getting feedback
Coming soon

3. FASB targeted improvements – long duration contracts Expected timeline
2014
2015
2016
2017
2019
2020
2021
Beyond
February 2014
FASB decided to drop its comprehensive insurance project and focus on targeted improvements
2017 / 2018*
Re-deliberations, and issuance of final standard
1st half 2016
Re-deliberations completed in March 2016; FASB votes to draft a revised document for exposure
August 2014
FASB begins re-deliberations on long duration targeted improvements based on scope agreed upon in April 2014
March 2017
Public roundtable
2018
September 2016
FASB exposure draft issued with comment period ending 12/15/16
2020+*
Potential adoption dates – assuming at least 2- 3 years is allowed for conversion efforts
* Timing is estimated based on our current understanding of the project’s progress and not based on official timeline provided by the FASB

4. FASB targeted improvements – long duration contracts
May/June 2015
FASB targeted improvements – long duration contracts
Proposed improvements:
Annual (or more frequent) updating of cash flow assumptions for liability for future policy benefits using retrospective method
Quarterly update of discount rate assumptions through OCI
High-quality fixed income instrument yield (proxy liability rate) vs. “expected investment yield” used today
Simplified DAC amortization:
Based on insurance in-force, or straight-line
No interest accretion and no impairment test
Variable product/separate account guarantees (GMXBs) with capital market risk at fair value; “instrument-specific credit risk” adjustment through OCI
Detailed disaggregated rollforwards of liabilities and DAC; qualitative and quantitative information about estimates
Retrospective transition for liabilities; prospective for DAC
Responding to user requests to update assumptions, simplify, and improve consistency
FASB proposed ED “targeted improvements” are pervasive

5. Updating cash flows Difference from current USGAAP
Major difference for traditional and participating products
Universal life products account value reserve does not change
Remove PADs
Need include expected dividends in all par models
Need to update systems
Need to retain historical data
Need to modernize factor based systems
Comparison to IFRS 17
New models apply to all products
Assumptions should be similar
Implicit vs explicit margin
Margins will respond differently to assumption changes

6. DAC Difference from current USGAAP Comparison to IFRS 17
Only changes prospectively
Much simpler approach
No longer subject to recoverability tests
Unclear what level of aggregation will be necessary
Unlike reserve change, this applies to all products
Comparison to IFRS 17
DAC is included in IFRS fulfillment cash flows – separate item for USGAAP
Potentially very different recognition pattern between bases

7. Equity guarantees Difference from current USGAAP Comparison to IFRS 17
Current model includes both fair value and “SOP 03-1” amortized cost for guarantees ties to variable/unit linked products – They will all now be FV
Much more I/S volatility
May require more hedging than previously done
Comparison to IFRS 17
Similar approach but some volatility can be absorbed by the CSM

8. Discount rate Difference from current USGAAP Comparison to IFRS 17
Move from expected yield basis to a market basis
Current assumption is company dependent and varies greatly. New assumption should be consistent
New rate expected to be much lower than current assumptions
May trigger loss recognition (similar to LAT) for some contracts at issue date
Comparison to IFRS 17
Similar in theory
More flexibility in IFRS guidance
IFRS rate expected to be higher than USGAAP rate

9. Expected comments from preparers
May/June 2015
Expected comments from preparers
Proposed improvements:
Annual (or more frequent) updating of cash flow assumptions for liability for future policy benefits using retrospective method
Quarterly update of discount rate assumptions through OCI
High-quality fixed income instrument yield (proxy liability rate) vs. “expected investment yield” used today
Simplified DAC amortization:
Based on insurance in-force, or straight-line
No interest accretion and no impairment test
Variable product/separate account guarantees (GMXBs) with capital market risk at fair value; “instrument-specific credit risk” adjustment through OCI
Detailed disaggregated rollforwards of liabilities and DAC; qualitative and quantitative information about estimates
Retrospective transition for liabilities; prospective for DAC
General agreement but implementation concerns?
Concerns resultant rate is too low?
Further clarification on methodology?
Concerns regarding volatility?
Significant work but useful?

10. Thank You