Insurance generally accepted accounting principles (GAAP) update

Insurance generally accepted accounting principles (GAAP) update
November 15, 2018

Today’s agenda Leases Classification and measurement Credit losses
Long-duration contracts Hedging 2018 Year-end Corporate Reporting Update

Leases (ASC 842) 2018 Year-end Corporate Reporting Update

Leases (ASC 842) Overview Lessees recognize assets and liabilities for most leases but recognize expenses in a manner similar to today’s accounting (ASC 840, Leases) For lessors, the new guidance modifies the lease classification criteria, leverages certain guidance in ASC 606 and eliminates leveraged lease accounting The new guidance eliminates today’s real estate-specific provisions and changes the sale and leaseback guidance The new standard requires entities to make more judgments and estimates and provide more disclosures ASC 842 will likely have a significant effect on financial statements, business processes, internal controls and systems for some entities Entities should not underestimate the time and resources necessary to implement the standard 2018 Year-end Corporate Reporting Update

Leases (ASC 842) Effective date and transition
Prior periods presented* SEC Staff Accounting Bulletin (SAB) Topic 11.M disclosures 2021 2019 2018 2016 Effective Modified retrospective application (calendar-year public entities**) 2017 Leases standard issued and early adoption permitted (all other calendar-year entities) 2020 * ASU gives entities another transition option that allows them to continue to apply ASC 840, including its disclosure requirements, in the comparative periods presented in the year they adopt ASC 842. ** Public entities includes public business entities and certain not-for-profit entities and employee benefit plans. Full retrospective adoption is prohibited 2018 Year-end Corporate Reporting Update

Leases (ASC 842) Recent standard setting
ASU , Targeted Improvements Option to apply the transition provisions at the beginning of the period of adoption, rather then at the beginning of the earliest comparative period presented Option for lessors to not separate lease and non-lease components if certain criteria are met ASU , Codification Improvements to Topic 842, Leases Technical improvements ASU , Land Easement Practical Expedient for Transition to Topic 842 Transition practical expedient for existing land easements The FASB proposed amendments to address accounting for sales taxes and certain lessor costs 2018 Year-end Corporate Reporting Update

Leases (ASC 842) Practical expedients and accounting policy
Transition practical expedients and accounting policy elections Expedient/election Lessee Lessor Apply to all leases Apply by class Package of practical expedients  Hindsight practical expedient Land easements practical expedient Short-term lease exception Do not separate certain lease and non-lease components Implementation may be more complex if the package of practical expedients is not elected and/or the hindsight practical expedient is elected When selecting accounting policies, entities will need to consider all lease contracts and contract provisions that have an accounting effect 2018 Year-end Corporate Reporting Update

Leases (ASC 842) SEC reporting considerations
Selected financial data table should follow the transition provisions of the standard Registrants should not revise the years prior to the date of initial application in their five-year selected financial data table Registrants should disclose lack of comparability of the data presented (if material) SEC staff is closely monitoring Staff Accounting Bulletin Topic 11.M disclosures If a registrant does not know or cannot reasonably estimate the effect of adopting the new standard, it should make a statement to that effect and consider providing qualitative disclosures The SEC staff expects a registrant’s disclosures to evolve as the effective date of a standard approaches 2018 Year-end Corporate Reporting Update

Leases (ASC 842) Key implementation risks
Completeness risk – How do you know that a complete and accurate population of contracts that are or contain leases has been identified? Data risk – How do you know that the data used to calculate the transition adjustments is complete and accurate? Accounting risk – How do you know that the lease accounting guidance, including any elected practical expedients, is applied accurately and that the judgments and estimates made in applying the accounting framework are reasonable? 2018 Year-end Corporate Reporting Update

Leases (ASC 842) Internal control considerations
Policies, processes, controls and systems must be designed to: Determine transition adjustments under the modified retrospective transition method Provide the disclosures required under the new standard Account for leases prospectively under ASC 842 after the effective date 2018 Year-end Corporate Reporting Update

Leases (ASC 842) IT considerations
Many entities may be implementing new IT systems, or modifying existing IT systems, to account for leases under the new standard Additional risks that may need to be addressed include: Lease data is not transferred completely and accurately from the entity’s current system to the new system New or modified IT systems do not function in a manner that complies with the requirements of ASC 842 Third-party vendor systems may not be fully functional by adoption, which could result in additional complexities and a higher risk assessment When management uses a service organization, it needs to identify the risks that arise and controls that are responsive to those risks 2018 Year-end Corporate Reporting Update

Recognition and measurement of financial assets and financial liabilities
2018 Year-end Corporate Reporting Update

Recognition and measurement Overview (ASU 2016-01)
Targeted amendments to existing US GAAP include: Equity investments are generally measured at fair value (FV) with changes in FV reported in net income (FV-NI) A new measurement alternative is available for equity investments without readily determinable FVs Changes in fair value caused by changes in instrument-specific credit risk (i.e., the entity’s own credit risk) are recognized in other comprehensive income (OCI) for financial liabilities measured under the fair value option Realizability of deferred tax assets (DTAs) related to available-for-sale (AFS) debt securities is assessed in combination with other DTAs Fair value disclosures for financial instruments carried at amortized cost are reduced for public business entities (PBEs) and eliminated for non-PBEs Effective dates of ASU for calendar year-end companies PBEs Non-PBEs Early adoption? Q1 2018 2019 Non-PBEs: Q1 2018 2018 Year-end Corporate Reporting Update

Recognition and measurement Equity investments decision tree
Is the equity investment accounted for under the equity method or does it result in consolidation? Does specialized industry guidance apply (e.g., broker-dealers, investment companies)? Is the measurement alternative elected? Does the equity investment qualify for the net asset value practical expedient in ASC 820? Measure at FV-NI Measure at cost less impairment, adjusted for observable price changes for an identical or similar investment of the same issuer Apply other US GAAP Does the equity investment have a readily determinable fair value? Yes No Yes No No Yes Yes No No Yes 2018 Year-end Corporate Reporting Update

Recognition and measurement Equity investments – applying the measurement alternative
Observable price changes include transactions occurring on or before the balance sheet date that are known or can reasonably be known Make a reasonable effort to identify price changes without expending undue cost and effort Consider the different rights and obligations (e.g., voting rights, distribution rights, conversion features) associated with the instruments to determine whether an investment is “similar” If an observable price relates to a similar investment of the same issuer, adjust the observable price for the different rights and obligations of the instrument being measured Assess investments qualitatively for impairment at each reporting date If an investment is impaired, estimate the investment’s FV in accordance with ASC 820 and recognize any loss in net income 2018 Year-end Corporate Reporting Update

Recognition and measurement Equity investments – technical corrections (ASU 2018-03)
An entity that measures an equity investment using the measurement alternative may irrevocably elect to change its approach to a fair value method under ASC 820 Applies to all identical or similar investments of same issuer Applies to all future purchases of identical or similar investments of the same issuer Under the measurement alternative, investment is remeasured to fair value on the date of the observable transaction for the similar security The prospective transition approach is applied only to equity investments for which the measurement alternative is elected Effective dates of ASU for calendar year-end companies PBEs Non-PBEs Early adoption? Annual 2018 2019 Permitted if ASU has been adopted Interim Q3 2018 Q1 2020 2018 Year-end Corporate Reporting Update

Credit losses (ASU ) 2018 Year-end Corporate Reporting Update

Credit losses (ASU 2016-13) Overview
All entities Current expected credit loss (CECL) model Financial assets measured at amortized cost: Trade receivables, reinsurance receivables, loans, held-to-maturity (HTM) debt securities, reverse repos Net investment in leases recognized by a lessor Off-balance-sheet credit exposures not accounted for as insurance AFS debt security impairment model Available-for-sale (AFS) debt securities Model for certain beneficial interests classified as HTM or AFS that are not of high credit quality The objective of the CECL model is to recognize an allowance for credit losses that results in the financial statements reflecting the net amount expected to be collected The CECL model requires a recognition of credit loss on almost all in-scope assets at origination and will require new disclosures The CECL model is expected to result in increased earnings volatility and will involve more judgment ASU also makes targeted changes to the accounting for AFS debt securities, replacing today’s concept of other-than-temporary impairment (OTTI) Core concepts of the CECL model Based on amortized cost Considers the risk of loss, even if remote Reflects losses over an asset’s contractual life Considers past events, current conditions and expectations of the future 2018 Year-end Corporate Reporting Update

Credit losses (ASU 2016-13) Effective date and transition
Effective date for annual periods beginning after: Public business entities (PBEs) that are SEC filers Other PBEs All other entities* Early adoption? 15 December 2019 and interim periods therein 15 December 2020 and interim periods therein 15 December 2020 and interim periods within annual periods beginning after 15 December 2021 Yes, but no earlier than annual periods beginning after 15 December 2018 and interim periods therein * The FASB proposed changing the effective date for non-PBEs to annual periods beginning after 15 December 2021 and interim periods therein. An entity will apply the new guidance using a modified retrospective approach and recognize a cumulative-effect adjustment as of the beginning of the first reporting period in which the guidance is effective Implementation efforts should be underway – entities will likely need to gather and retain additional data and enhance modelling capabilities and processes and controls 2018 Year-end Corporate Reporting Update

CECL model Accounts receivable considerations
Risk of loss Forecasting Leverage historical loss experience Anticipate losses on receivables that are aged and those that have not yet shown indicators of impairment (no expectation of loss is likely not appropriate) Group receivables based on risk characteristics (e.g., customer credit score, aging) Determine which factors or economic conditions drive loss experience Consider effect of future economic conditions on loss expectations Evaluating relevant risk factors associated with assets in scope is a critical step in assessing the extent of implementation efforts required Determining life Data and modeling Estimate life Understand key contract terms that may affect estimated life Evaluate impairment of contract assets and transition from contract asset to a receivable Consider availability of historical loss information Assess internal controls: data retention and integrity Determine need to model losses based on expectation of forecasted conditions Perform gap assessment 2018 Year-end Corporate Reporting Update

CECL model Accounts receivable illustration
Company A manufactures and sells products to a broad range of customers and provides customers with payment terms of 90 days Management expects unemployment to increase in the coming year, making adjustments to historical loss rates in estimating its allowance for credit losses as shown in the following table: Past-due status Amortized cost Historical loss rate Adjustments Expected Allowance for credit losses Current $5,984,698 0.27% 0.03% 0.30% $17,954 1–30 days past due 8,272 7.20% 0.80% 8.00% 662 31–60 days past due 2,882 23.40% 2.60% 26.00% 749 61–90 days past due 842 52.20% 5.80% 58.00% 488 Over 90 days past due 1,100 73.80% 8.20% 82.00% 902 Total $5,997,794 0.31% 0.04% 0.35% $20,755 2018 Year-end Corporate Reporting Update

AFS debt security impairment model Targeted amendments
Current guidance New standard Focuses on whether the impairment is other than temporary Recognize OTTI as a reduction of the security’s cost basis Recognize reversals of impairment as an adjustment to future interest income Focuses on whether the unrealized loss is attributable, at least in part, to a credit loss Generally recognize an allowance for credit losses Recognize reversals of impairment immediately as a reduction of the allowance for credit losses An entity may not use the length of time a security has been in an unrealized loss position as a factor, by itself or in combination with others, to conclude whether a credit loss exists 2018 Year-end Corporate Reporting Update

Key interpretive issues
Wesley R. Bricker SEC Chief Accountant The new standard does not generally prescribe specific estimation methods to be used, but rather allows an entity to apply judgment to develop estimation methods that are appropriate, practical, and consistent with the principles of the guidance. SEC AICPA Depository Institution Expert Panel Accounting firms IFRS 9 constituents Bank regulators Financial institutions FASB and the Transition Resource Group (TRG) for Credit Losses Banking industry groups (e.g., RMA, ABA) Investors and analysts Nonfinancial institutions PCAOB Vendors and consultants Following the June 2018 TRG meeting, the FASB tentatively decided to amend ASC 326 to reflect some of the TRG members’ views 2018 Year-end Corporate Reporting Update

Implementation observations
Key observations to date Engaging stakeholders and establishing proper governance are critical Finance and risk are typically co-leading implementation efforts, with significant investment in modeling, data and IT systems Significant updates to accounting policies are expected, as well as additional training, education efforts and enhancements to internal controls Entities should plan for a parallel run before implementation [ Public entities need to provide disclosures discussed in Staff Accounting Bulletin Topic 11.M 2018 Year-end Corporate Reporting Update

Long duration contracts

The insurance contracts journey Effective date timeline
Final standard Transition date Effective date* 2018 2019 2020 2021 SAB Topic 11.M disclosures First interim and annual financial statements Comparative reporting periods for 2021 financial statements * This is the effective date for public business entities (PBEs). The effective date for non-PBEs is fiscal years beginning after 15 December 2021 and interim periods the following year; only one year of comparative financials may be needed if only two years of income statement activity are presented.

Summary of key changes Products affected Targeted improvements
Liability for future policyholder benefits Non-par traditional long-duration and limited payment contracts Requires cash flow assumptions and actual experience to be updated on a cumulative catch-up basis (i.e., retrospective); recognized through earnings Requires discount rate assumption to be updated using the upper-medium-grade fixed-income instrument yield each period; recognized through OCI Eliminates loss recognition testing Market risk benefits Deposit products with certain benefit features (e.g., variable annuities, fixed index annuities) Creates new classification for these features Requires features to be measured at fair value with changes recognized in income (except for own credit spread effect) Deferred acquisition costs (DAC) All products except certain investment contracts Simplifies DAC amortization (a constant basis over the life of the contract) Eliminates impairment testing Disclosures All long-duration products Adds significant new granular disclosures Adds disaggregated tabular reserve roll forwards Adds qualitative disclosures about significant inputs, judgments and assumptions

Liability for future policyholder benefits Net premium model under current guidance
PV future benefits & expenses Net premium ratio (NPR) PV future gross premiums = Contract issuance Lifetime ÷ x NPR PV of future net premiums PV of future benefits & expenses less Future benefits & expenses Future net premiums Contract issuance & subsequent measurement Actual benefits & expenses* Actual gross premiums* Future gross premiums Apply time value of money Reserves Cash flow assumptions in the net premium model are locked in as of the contract issue date Assumptions include a provision for adverse deviation (PAD) NPR is used in all subsequent measurement periods (absent a premium deficiency) * Actual benefits and expenses and gross premiums are recorded in the income statement in the period in which they occur.

Liability for future policyholder benefits Net premium model under new guidance
FASB’s intent: Improve the timeliness of recognizing changes in assumptions NPR = Contract issuance & annual review of assumptions Lifetime ÷ x NPR PV of future net premiums PV of future benefits & expenses less Future benefits & expenses Future net premiums Contract issuance & subsequent measurement Actual benefits & expenses* Actual gross premiums* Future gross premiums Apply time value of money Reserves PV future benefits & expenses PV future gross premiums PV actual gross premiums PV actual benefits & expenses Cash flow assumptions in the net premium model are reviewed at least annually, at the same time every year (or more frequent, as needed) Discount rate used in net premium model is held constant from contract issuance Insurers are not required to review expense assumptions (entity-wide election) New guidance eliminates inclusion of assumptions for provision for adverse deviation (PAD) * Actual benefits and expenses and gross premiums are recorded in the income statement in the period in which they occur.

Liability for future policyholder benefits Other changes
Unit of account at which reserves are calculated Contracts from different issue years cannot be grouped when measuring the liability Contracts within a single issue year may be grouped into quarterly or annual cohorts Adjustments to the results of the net premium model NPR is capped at 100% Loss recognition test is eliminated Liability should never be less than zero

Liability for future policyholder benefits Updating cash flow assumptions and determining the income statement effect Prior NPR Revised NPR Remeasurement gain or loss done on a cumulative catch-up basis using the revised NPR as of the beginning of the period and includes: Effect of updating actual historical cash flows in the NPR Effect of updating assumptions in the NPR Current period benefit expense measured using the same revised NPR as of the end of the period Beginning of the reporting period End of the reporting period Liability calculation #1 less Previous liability calculation Liability calculation #1 Liability calculation #2 Liability calculation #2 Remeasurement gain/loss Current period benefit expense

Liability for future policyholder benefits Discount rate
FASB’s intent: Modify the discount rate used Discount rate based on upper-medium-grade fixed-income instrument yields Reflects the duration characteristics of the liability Maximizes the use of observable inputs Balance sheet liability discount rate Updated to current rate every reporting period Effect of change recognized in other comprehensive income (OCI) Income statement liability accretion rate Uses contract inception discount rate Exception for contracts transitioned under the modified retrospective method

Difference in liability calculations
Liability for future policyholder benefits Measuring and accounting for changes in discount rate assumptions End of reporting period calculations – using revised NPR Discount rate at contract issuance Discount rate at end of reporting period Liability calculation #2 (see prior slide) Liability calculation #3 Difference in liability calculations less Amounts previously recorded to accumulated other comprehensive income (AOCI) OCI

Liability calculations Financial statement effect
Liability for future policyholder benefits Summary of financial statement effect of updates to the net premium model Liability calculations NPR Measurement date Discount rate Financial statement effect Prior period Previous Future cash flows as of the beginning of the reporting period Upper- medium- grade yield at contract issue date Remeasurement gain/loss Revised Components of benefit expense Calculation #1 Current period benefit expense Future cash flows as of the end of the reporting period Calculation #2 OCI Updated at end of reporting period Calculation #3 Reserves for future policyholder benefits

Liability for future policyholder benefits How are participating and universal life-type insurance contracts affected? Participating contracts Existing ASC 944 guidance for liability measurement to be retained Proposal called for liability measurement similar to traditional and limited- payment contracts Enhanced disclosures required Universal life-type contracts (base contract account value) Loss recognition testing retained without the requirement to recover DAC Enhanced disclosures on methodology and adverse development that resulted in a premium deficiency

Not a market risk benefit Does the benefit feature…
Additional liability for benefit features New concept – market risk benefits FASB’s intent: Simplify and improve accounting for certain market-based options or guarantees associated with deposit contracts Transfer a loss in the policyholder’s account balance? Not a market risk benefit Transfer a shortfall in the policyholder’s benefits? Protect the death benefit of a life insurance contract? Expose insurer to capital market risk and that risk is other-than-nominal? Yes No Market risk benefit Measure market risk benefits at fair value Subsequent measurement changes related to instrument- specific credit risk recorded in OCI All other changes in fair value recognized in earnings Compound multiple market risk benefits in a single contract Does the benefit feature…

Additional liability for benefit features What changed?
Guidance requires a hierarchy approach to determine the model to apply to the benefit feature Market risk benefits Embedded derivatives Annuitization, death or other insurance benefits Any benefit features that protect the contract holder’s account balance from and expose the insurer to capital market risk Measured at fair value applying ASC 944 Changes in the fair value related to instrument-specific credit risk recognized in OCI and remaining changes recognized in income Generally associated with benefit features offered in general account products Measured at fair value applying ASC 815 All changes in the fair value recognized in income Valued by applying the insurance liability benefit ratio model All changes in the liability recognized in benefit expense Guidance clarifies discount rates to be applied

Benefit feature description
Additional liability for benefit features Example benefit feature evaluation Does the benefit feature: Benefit feature description Protect the death benefit of a life insurance contract? Expose the insurer to capital market risk? Result in other-than-nominal capital market risk? Transfer a loss in the policyholder’s account balance? Transfer a shortfall in the policyholder’s benefits? Accounting Model Guaranteed minimum benefits (GMXBs) No Yes Market risk benefit Indexed crediting rate Not market risk benefit possibly embedded derivative No lapse guarantee on an insurance contract N/A additional insurance liability

Deferred acquisition costs (DAC)
FASB’s intent: Simplify the methods to amortize DAC Amortization DAC is amortized on a constant-level basis Individual contracts on a straight-line basis Grouped contracts on a constant-level basis that approximates a straight-line basis Amortization rate is updated for changes in expected assumptions (apply prospectively) DAC is reduced for unexpected contract terminations ASU eliminates Interest accretion on DAC/Shadow DAC Recoverability testing and impairment assessment Other matters DAC amortization model should be applied to other balances (e.g., deferred sales inducements) Insurers continue using the effective interest method for certain investment contracts

Disclosures Insurance liabilities and DAC
Additional disclosures for certain insurance liabilities Disclosures Insurance liabilities and DAC FASB’s intent: Improve the effectiveness of disclosures in interim and annual financial statements General disclosure requirements for all insurance liabilities and DAC Disaggregated roll forwards Qualitative and quantitative information Reconciliation to the carrying amount and certain income statement activity Techniques to determine unobservable discount rates Market risk benefits Guaranteed benefit amounts in excess of account balances Liability for policyholder’s account balances Account balances by range of guaranteed minimum crediting rates Weighted average credited rate Cash surrender value Liability for future policyholder benefits and the additional liability for benefit features Separate roll forwards for expected future net premiums and benefits Ending balance of expected future gross premiums, both discounted and undiscounted Actual cash flow experience compared to expectations Reinsurance recoverables

Transition – Liability for future policyholder benefits & DAC Modified retrospective transition
Transition date – update future cash flow estimates Revised NPR calculated at transition using: Updated expected future cash flows, adjusted for the reserve carry over basis at transition Discount rate used in the measurement of the liability immediately before transition (and used for future interest accretion) Transition adjustments: Remove adjustments previously recorded to AOCI Record the effect of the upper- medium-grade fixed-income instrument yield in AOCI If revised NPR > 100%, record cumulative effect adjustment to retained earnings at transition Lifetime Actual benefits & expenses PV future benefits & expenses Lifetime Actual gross premiums PV future gross premiums Revised NPR less ÷ = Reserve carryover basis* at transition *Carryover basis equals the carrying amounts at transition adjusted for the removal of any related amounts in AOCI at transition.

Transition – Liability for future policyholder benefits & DAC Retrospective transition election
1/1/2019 Transition date 1/1/2021 Standard adoption date Future issue years In force contract issue years Application of the guidance Modified retrospective Retrospective 1/1/2017* Retrospective adoption date For retrospective transition, use actual historical information at the level of aggregation at which reserves are calculated Align DAC transition approach with that of the related liability Balance as of the transition date will be the preceding carrying amount (modified retrospective) or a retrospectively adjusted balance (retrospective) Remove shadow DAC regardless of transition approach *Retrospective adoption date of 1/1/2017 used for illustrative purposes.

Transition – Liability for future policyholder benefits & DAC Adjustments and disclosures
Transition adjustments Recognize in AOCI the cumulative effect of changes in the discount rate between the rates applied immediately before transition and the upper- medium-grade fixed-income instrument yield at the transition date Recognize in retained earnings all other changes in the liability balance at the transition date Transition disclosures Rollforward of balances at transition date (from pre-adoption to post-adoption) Qualitative and quantitative information about the effect

Transition – market risk benefits
Retrospectively measured at fair value at the transition date Step 1: Determine the amount of fees that would have been attributed to the market risk benefit at contract inception Use of hindsight is allowed for assumptions based on unobservable information Step 2: Determine fair value at transition date Cumulative effect of changes in the instrument-specific credit risk between contract inception date and transition date recognized in AOCI Difference between fair value and carrying value at the transition date, excluding amounts recorded in AOCI, recorded to opening retained earnings Transition disclosures Rollforward of balances at transition date (from pre-adoption to post-adoption) Qualitative and quantitative information about the effect

Targeted improvements to accounting for hedging activities

Targeted improvements to accounting for hedging activities (ASU 2017-12) Overview
FASB made targeted amendments to enable entities to better portray the economics of their risk management activities in the financial statements Also simplifies certain aspects of hedge accounting Amendments are intended to: Expand risks that are eligible to be hedged Provide users with better insight into hedging strategies and their effectiveness Reduce the complexity of applying hedge accounting Many aspects of ASC 815 remain unchanged All guidance in ASC 815 not related to hedge accounting “Highly effective” threshold Effective dates for calendar-year entities Transition method Public business entities (PBEs) Non-PBEs Early adoption? Generally modified retrospective Q1 2019 2020 Yes 2018 Year-end Corporate Reporting Update

Targeted improvements to accounting for hedging activities (ASU ) Key amendments – recognition and presentation Further align the timing of earnings recognition and income statement presentation of the hedging instrument with the hedged item Eliminate the need to separately measure and report hedge ineffectiveness Modify the timing of when change in fair value (FV) of hedging instrument is recognized in earnings Cash flow and net investment hedges – Record entire change included in the assessment of hedge effectiveness in other comprehensive income and reclassify when the hedged item affects earnings Fair value hedges – Recognize gains/losses in earnings every period (i.e., no change when components are not excluded from the assessment of hedge effectiveness) Excluded components – Initial value may be amortized into earnings, or entity can elect to recognize the change in the FV of excluded component in earnings immediately Cross-currency basis spread can now be excluded from assessment of hedge effectiveness, in addition to time value Generally require the entire effect of the hedging instrument (including excluded components) and the hedged item to be presented in the same income statement line item 2018 Year-end Corporate Reporting Update

Targeted improvements to accounting for hedging activities (ASU ) Key amendments – hedging risk components Cash flow hedges of financial and nonfinancial risk components Allow for hedging of contractually specified components in cash flow hedges of: Variable-rate financial instruments (i.e., non-benchmark interest rates) Nonfinancial items (i.e., market index or price) Fair value hedges of benchmark interest rate risk Provide flexibility when hedging benchmark interest rate risk Benchmark component of cash flows Hedging prepayable instruments Partial-term hedging New model for hedging portfolios of prepayable assets 2018 Year-end Corporate Reporting Update

Targeted improvements to accounting for hedging activities (ASU 2017-12) Other amendments
Ease documentation and assessment requirements More time to complete initial quantitative testing Expanded ability to assess hedge effectiveness qualitatively Provide accommodations for critical terms match and shortcut methods New or modified disclosures Revised tabular disclosure showing the effect of hedge accounting by income statement line Cumulative basis adjustment to the hedged item in fair value hedges Additional disclosures for hedging relationships designated under the last-of-layer method Transition Generally applied on a modified retrospective basis with a cumulative effect adjustment for hedging relationships existing on the date of adoption Certain one-time transition elections for existing hedges 2018 Year-end Corporate Reporting Update

Targeted improvements to accounting for hedging activities (ASU 2017-12) Implementation issues
FASB staff has responded to technical inquiries addressing: Features that result in financial instruments being prepayable Partial-term hedges Hedging foreign exchange risk in addition to interest rate risk Multiple hedging relationships Disclosures related to FV hedges Relief from certain disclosures when hedging foreign exchange risk Carrying value of available-for-sale debt securities Transition (one-time elections) Ability to switch from a quantitative assessment method to a qualitative approach based on the critical terms match method Clarifications related to transfers of held-to-maturity debt securities to the available-for-sale category 2018 Year-end Corporate Reporting Update

FASB projects related to hedge accounting
Codification improvements Improvements that would clarify the application of certain aspects of the new hedging guidance are being researched by the FASB staff Last-of-layer method Narrow scope project to address the allocation of basis adjustments and multiple-layer hedging strategies The Overnight Index Swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR) Proposal to add the SOFR OIS rate as an eligible US benchmark interest rate for fair value hedges of interest rate risk 2018 Year-end Corporate Reporting Update

Insurance generally accepted accounting principles (GAAP) update

Similar presentations

Presentation on theme: "Insurance generally accepted accounting principles (GAAP) update"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Insurance generally accepted accounting principles (GAAP) update

Similar presentations

Presentation on theme: "Insurance generally accepted accounting principles (GAAP) update"— Presentation transcript:

Similar presentations

About project

Feedback