n April 2010 the FASB issued ASU No. 2010-15 Financial Services—Insurance (Topic 944) How Investments Held Through Separate Accounts Affect an Insurer’s Consolidation Analysis of those Investments (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early adoption is permitted and the amendments in this ASU should be applied retrospectively to all prior periods upon the date of adoption.
This ASU was issued to address practice questions on how investments held through the separate accounts of an insurance entity affect the consolidation analysis under Subtopic 810-10, Consolidation—Overall. It explains that separate accounts represent assets that are typically maintained by a life insurance entity for purposes of funding obligations to individual contract holders under fixed-benefit or variable annuity contract, personal plans, and similar contracts. The contract holder generally assumes the investment risk, and the insurance entity receives a fee for investment management, certain administrative expenses, and mortality and expense risk assumed. The accounting for separate accounts is outlined in Subtopic 944-80 Financial Services – Insurance – Separate Accounts. That Subtopic requires that the portion of separate account assets representing contract holder funds be measured at fair value and reported in the insurance entity’s financial statements as a summary total, with an equivalent summary total reported for related liabilities if all of the criteria in 944-80-25-2 are met.
Who is Affected?
Insurance entities that have separate accounts that meet the definition of a separate account in paragraph 944-80-25-2 when evaluating whether to consolidate an investment held through the separate account or through a combination of investments in the separate and general accounts are affected by this ASU. The accounting for situations in which an insurer’s general account has a controlling financial interest in an investment is not affected by the amendments in this Update and should follow existing GAAP on consolidations.
Insurance entities that have separate accounts that meet the definition of a separate account in paragraph 944-80-25-2 when evaluating whether to consolidate an investment held through the separate account or through a combination of investments in the separate and general accounts are affected by this ASU. The accounting for situations in which an insurer’s general account has a controlling financial interest in an investment is not affected by the amendments in this Update and should follow existing GAAP on consolidations.
The amendments in this Update are specific to insurance entities that have separate accounts and should not be analogized for other entities in no-separate-account arrangements or other investment situations.
ASUs are available on the FASB website, www.fasb.org under Standards.
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