Description: Importance of non-GAAP operating earnings

Description: The introduction and effective application of US GAAP LDTI have increased the scrutiny of those reviewing the updated financial results. That is because LDTI has resulted in significant changes in actuarial reserving and deferred acquisition cost (DAC) models for long-duration contracts, including significant changes to data, assumptions and required disclosures. In light of the changes, greater reliance has been put on companies’ model risk management (MRM) teams and model validations to assess the conceptual soundness and accuracy of their companies’ actuarial models and to assess that the underlying data and process utilized are suitable and appropriate. This article covers a brief background on model validation, walk through a sample LDTI-focused model validation framework/test plan, then provide insights on common LDTI-related validation observations based on the authors' prior validation experience.

Description: Accounting Standards Update No. 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI) has been effective for most large, public business entities since 2023 and will be effective for other insurers in 2025. While the guidance clarifies the need for incorporating claim liabilities and premium accrual balances in the liability for future policy benefits (LFPB) under LDTI, companies may still have questions given there are limited details available around the techniques used in practice. In this article, we demonstrate the need for incorporating claim liabilities and premium accrual balances in the LFPB under LDTI. We also look at two potential approaches of incorporating these accrual balances.