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Best’s Special Report: Insurers are Adjusting to FASB’s New GAAP Rules

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Press release content from Business Wire. The AP news staff was not involved in its creation.
January 10, 2023 GMT

OLDWICK, N.J.--(BUSINESS WIRE)--Jan 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.

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.

To access the full copy of this special report, please visit

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

Copyright © 2023 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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PUB: 01/10/2023 09:30 AM/DISC: 01/10/2023 09:29 AM