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FAS97: Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments

Issued: Dec 1987 Superseded by: ASC Summary Scope: For universal life-type contracts that were not addressed by FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. For limited-payment long-duration insurance contracts and investment contracts and amends Statement 60 to change the reporting of realized gains and losses on investments.   Applicability: {US-FAS97-6} Investment contracts, Long-duration contracts that do not subject the insurance enterprise to risks arising from policyholder mortality or morbidity. {US-FAS97-7} Limited-payment contracts, Long-duration insurance contracts with terms that are fixed and guaranteed, and for which premiums are paid over a period shorter than the period over which benefits are provided. {US-FAS97-9} Universal life-type contracts long-duration insurance contracts with terms that are not fixed and guaranteed. {US-FAS97-10}Universal life-type contracts include contracts that provide either death or annuity benefits and are characterized by any one of the following features: One or more of the amounts assessed by the insurer against the policyholder that are not fixed and guaranteed by the terms of the contract. mortality coverage contract administration initiation surrender Amounts that accrue to the benefit of the policyholder that are not fixed and guaranteed by the terms of the contract. interest accrued to policyholder balances Varied premiums. Participating contracts …

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FAS60: Accounting and Reporting by Insurance Enterprises

Classification of Insurance Contracts

Insurance contracts are classified as short-duration or long-duration contracts.
Long-duration contracts: insurance contracts that are expected to remain in force for an extended period include contracts, such as:
whole-life,
guaranteed renewable term life,
endowment, annuity, and
title insurance contracts.
Otherwise, short-duration contracts.
most property and liability insurance contracts.

US GAAP – FAS 60 & FAS 97 Basic Concepts

Please note that the information contained in this post is based on my own research and understanding of the topic. While I have made every effort to ensure its accuracy, I cannot guarantee that it is completely error-free. If you notice any errors or omissions, please let me know so that I can correct them.   Applicability   FAS 60 FAS 97 Contracts Traditional non-participating life products Participating policies that don’t follow the contribution principle, otherwise FAS 120 Traditional plans with premium paying period equal to policy period, otherwise FAS 97 (limited-pay contracts) Nonguaranteed-premium contracts Limited pay contracts with: risk extending beyond the premium paying period, and with terms that are fixed and guaranteed Investment contracts Universal life-type contracts {US-FAS97-6}   Assumption Best-Estimate + Provision for adverse deviation (PAD) Assumptions are locked in at the time of sale. Assumptions can only be unlocked in a loss recognition event.   Calculation Methodology Statement of Financial Accounting Standard No. 60 (FAS 60) Projects Premiums, investment income, benefits, expenses Benefits = guaranteed & non-guaranteed Expenses = commission, acquisition expenses and direct maintenance expense (excluding overhead) Calculate Valuation Net Premium Calculate Terminal Reserve   Impact on Balance Sheet Statement of Financial Accounting Standard No. …

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