Authors: Hartley Hartman, senior associate, Johnson Lambert and Magali Welch, Partner, Johnson Lambert

Insurance companies were more than pleased when the Financial Accounting Standards Board (FASB or the Board) decided to abandon its attempt at convergence on insurance contract accounting with the International Accounting Standards Board earlier this year.  However, the trade-off for companies writing short-duration insurance contracts (primarily property, liability and short-term health) was targeted improvements to current guidance via enhanced disclosure requirements.  Although the Board is in the process of obtaining feedback from select constituents, they will likely require the following information in the footnotes to the financial statements.

Incurred and Paid Claim Development Tables

The development tables should include information on claims and claims adjustment expenses and be presented net of reinsurance on an accident year basis.  The tables should be aggregated or disaggregated to be consistent with how the company manages its business, such as line of business or geographic area.

The development tables should contain ten years of information.  However, the Board has recognized that in certain circumstances less than ten years of information is acceptable (ex. health insurance claims).  Conversely, a company may disclose more than ten years of data if it provides meaningful information.  Knowing that not all companies have this information readily available, the Board is allowing companies to initially disclose five years of data, adding another year of data each year until it reaches ten years.

A reconciliation of the incurred and paid claim development tables to the amounts reported in each period of the income statement is also required, with a separate disclosure of ceded information.

Frequency and Severity of Claims

The claim count for each accident year presented in the incurred claim development tables as well as information about the incurred but not reported reserves included is required.  Further, a company is required to provide insight into its claim settlement practices by disclosing the “average annual percentage pay-out” of claims included in the development tables, except for health insurance claims, which the Board specifically carved out.


For those companies who discount a portion of their loss reserves, disclosure about the effects of discounting are required, including the rates used to discount reserves, the amount of interest recognized and where it is classified in the financial statements.


If a company makes material changes to the methods or judgments used in calculating loss reserves, it must disclose the changes, the reason(s) for the change(s) and the financial statement impact.

Effective Dates

Pending feedback from the select constituents, the FASB is expected to release the Accounting Standard Update (ASU), which includes the new disclosure requirements during the first quarter of 2015.  The ASU will be effective for annual reporting periods beginning after December 31, 2014 and interim reporting periods beginning after December 31, 2015 for public companies.  The guidance will be effective one year later for all other companies.  Early adoption is permitted for all companies.

For more information on the FASB’s Insurance – Disclosures about Short-Duration Contracts project, visit: