The Pulse

Insurers Are Adjusting To FASB’s New GAAP Rules

New FASB rules for long-duration targeted improvements implemented on January 1, 2023

A new report from AM Best reveals FASB’s new accounting standards require significant disclosures compared to prior standards, to enhance transparency for investors and other users of GAAP financial statements. To access the full copy of this special report, please visit here.

OLDWICK, N.J., January 10, 2023—New financial reporting rules for long-duration contracts will increase transparency to investors and other users of GAAP financial statements, although the complexity of the calculations may make comparisons difficult, according to a new AM Best special report.

The Financial Accounting Standards Board’s new rules are among the most significant changes to GAAP accounting in the past few decades, simplifying and enhancing financial reporting for long-duration contracts while creating a more standardized and transparent GAAP statement. Under the new standard, companies will be on a more level playing field, as discounting used to determine the liability for future policy benefits will be based on upper medium grade discount rates.

In its Best’s Special Report, “Insurers Are Adjusting to FASB’s New GAAP Rules,” AM Best notes that reconciliations of beginning- and end-of-period balances must be disclosed for reserves for future policy benefits, account balances, deferred acquisition cost assets, market risk benefit reserves, separate account liabilities and other balances such as sales inducements. Because assumptions must be updated at least annually, insurers may find communicating changes effectively a challenge. In addition, disaggregated roll-forwards required for each of the balances must disclose actual to expected results for a variety of assumptions used to calculate each balance. Roll-forwards will also be required by cohorts, forcing companies to review and re-create historical performance leading up to each reporting date, which will require extensive review of systems capabilities.

Principal Takeaways

  • FASB’s new accounting standards require significant disclosures compared to prior standards, to enhance transparency for investors and other users of GAAP financial statements.
  • Long-duration targeted improvements to the accounting for long-duration contracts took effect on January 1, 2023 (with a transition date of January 1, 2021), for SEC filers, and will take effect on January 1, 2025, for non-public GAAP filers, (with a transition date of January 1, 2023).
  • Liability for future policy benefits will use an upper medium grade discount rate (i.e., a Single-A yield curve), updated quarterly, rather than the expected investment yield of the portfolio’s backing liabilities.
  • Assumptions to determine liability for future policy benefits are updated annually rather than being locked in at issue (unless unlocking occurs).
  • Deferred acquisition costs cannot be deferred until they occur and will be amortized against earnings over unit-based metrics, as opposed to estimated future profits.
  • Guaranteed benefits offered with variable annuities and fixed indexed annuities will now be treated as Market Risk Benefits (MRB) and consistently valued at fair value, using a risk- neutral approach rather than real world rates or historical returns.

AM Best reviews the impact of accounting changes as part of its ongoing surveillance and does not currently expect Credit Ratings to be negatively affected by the long-duration targeted improvements (LDTI). Financial leverage metrics and Best’s Capital Adequacy Ratio are reviewed using available capital, including and excluding the impacts of changes in interest or other non-economic items such as Accumulated Other Comprehensive Income (AOCI). Prior GAAP accounting included unrealized gains or losses on fixed income securities in AOCI. The new standard will include changes to liabilities that may offset changes in assets in the AOCI balance due to interest rate changes, leading to a more economic balance sheet.

For public SEC filers, these rules took effect Jan. 1, with a transition date of Jan. 1, 2021. Companies will have to restate their balance sheets and income statements effective with the transition date and roll forward their GAAP statements to 2023 and beyond. For non-public GAAP filers, the effective date is Jan. 1, 2025, with balance sheets and income statements restated based on a Jan. 1, 2023, transition date. Companies exposed to business globally may not see such a sharp increase in discount rates, as local interest rates may not have risen as much as they have in the United States. Companies with significant market risk benefits exposure may see declines in retained earnings as of the effective date, but not nearly the level that will be reported as of the transition date.




AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit