Big Accounting Shift in 2023 May Help Some Insurers: Analyst

 Commentary  December 17, 2021 at 07:44 AM  Share & Print

What You Need to Know

  • The FASB Long-Duration Targeted Improvements rules are set to take effect in 2023.

  • They could make GAAP balance sheets more volatile.

  • Ryan Krueger expects the rules to make long-term care insurance and permanent life products look worse.

The giant accounting rule shift coming in 2023 could help life insurers that have focused on selling term life insurance, employee benefit products and some other products, according to Ryan Krueger.

Krueger, a life insurance analyst at Stifel Financial Corp.’s Keefe, Bruyette & Woods, lists the possible winners and losers in a 2022 outlook report.

The Financial Accounting Standards Board set the shift in motion by adopting the Long-Duration Targeted Improvements rules for life insurers. The rules, which are supposed to take effect in 2023, require affected insurers to reflect estimated changes in the value of long-term benefits obligations in current U.S. Generally Accepted Accounting Principles financial statements.

“At a high level, the GAAP balance sheet will become far more market/rate sensitive, actuarial assumptions will be updated annually for all products, and the pattern of GAAP profit emergence will change for some products,” Krueger writes.

The LDTI rules will have no direct effect on the financial statements that life insurers file with state insurance regulators, he notes.

Krueger predicts that the LDTI rules will lead to near-term profit reporting increases for term life, employee benefits, group retirement operations and asset management businesses.

he new rules should also make traditional life insurance operations with strong profit margins look good, he says.

Universal life could show somewhat weaker earnings improvement, and “we expect larger negative book value impacts for life insurers with greater exposure to variable annuities, long-term care, long-duration life insurance, and structured settlements,” he adds.

Krueger expects many affected companies to give details about how the LDTI might affect them in mid-2022.

He predicts the new LDTI rules will make term life look better.

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European Compliance Association

European Compliance Association