Enhanced Loss Disclosures for P&C Companies Have Arrived
By Magali Welch, CPA, CA, AIAF, Partner, Johnson Lambert LLP

After abandoning the joint insurance project with the IASB, the FASB begin discussing improvements to short-duration insurance contract disclosures. In May 2015, the FASB issued an Accounting Standards Update, which outlines the new loss disclosures that are intended to provide financial statement users more information on an insurance company’s ability to underwrite and anticipate future claims associated with those policies.

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New Disclosures
Undiscounted incurred and paid claim development tables by accident year (A/Y).  The tables should include information for the period of time claims typically remain open, but no more than ten years.  
A reconciliation of the above tables to the liability for unpaid losses and loss adjustment expenses (LAE) with a separate disclosure for reinsurance recoverable of unpaid losses and LAE
Total incurred but not reported (IBNR) plus expected development by A/Y
Cumulative claims frequency information; if impracticable to calculate, state that fact and the reasons why
A description of the methodologies used to calculate IBNR and any changes made to such methodologies
A description of the calculation of claims frequency information and any changes made to such calculation
Historical average annual payout percentages of the incurred claims by age, net of reinsurance (health insurance claims are excluded)
Information about discounted unpaid losses and LAE:
o Carrying amount presented in the financial statements
o Range of interest rates used in the discounting calculation
o Aggregate amount of discount
o Amount of interest accretion recognized in the statement of comprehensive income and the line(s) in which it is reported

Aggregation/Disaggregation of Data
The data reported in the incurred and paid claim development tables should be aggregated or disaggregated to ensure the information is decision useful; therefore, companies may have several tables. The new guidance provides information that an insurance company can consider in determining how to aggregate or disaggregate data, such as type of coverage, geography, type of customer, etc.

Tracking Claims Frequency
The guidance also provides examples of ways claims frequency information might be tracked, such as claim event or number of individual claimants.

Implementation Costs
The Board acknowledges that a significant amount of the data may be needed to prepare these disclosures; however, it believes that some information may already be available to meet statutory reporting requirements, which should help mitigate the implementation costs. The FASB published an Understanding Costs and Benefits document that discusses costs that insurance companies may incur. 

Effective Date & Transition
For public business entities – Effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016

For all other entities – Effective for annual periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017

Early application is permitted. The update should be applied retrospectively, except for those requirements that apply only to the current period.

For more information, contact Magali Welch at mwelch@johnsonlambert.com