FASAB Contact, Robin Gilliam, firstname.lastname@example.org, 202-512-7356
|Request for Comment||Due Date||Word Version of
|Comment Letters||Final Pronouncement|
|March 29, 2016||Word Version of
|N/A – Currently
The Application of the Liability Definition project was closed in August 2011 and related research subsumed by the new Risk Assumed project. The Board approved the broader Risk Assumed project to:
- Determine what risks the federal government assumes when it implements policy initiatives to provide safety and stabilize financial markets and the economy.
- Update current standards that are limited to insurance contracts and
- explicit guarantees (other than loan guarantees).
Account for and report all significant risks assumed in order to meet the stewardship and operating performance objectives of federal financial reporting.
In June 2013, due to the breadth of the project, the Board decided to separate risk assumed into the following three phases:
- Phase I: Insurance Programs (originally named insurance and non-loan guarantee)
- Phase II: Entitlement Programs, which may include:
- Security and disaster response
- National Defense
- Other potential effects on future outflows, such as:
- regulatory actions, and
- government sponsored enterprises (GSEs).
- Phase III:
- Other risk areas
Staff is currently developing the exposure draft for Phase I: Risk Assumed-Insurance Programs which will:
- define federal Insurance programs,
- improve terminology,
- address measurement uncertainty regarding estimated losses on open contracts as of the reporting year end, and
- update disclosures to include uncertainties and risk factors.
HISTORY OF BOARD DELIBERATIONS (reverse chronology)
October 19-20, 2016 Board Meeting
At the October 19, 2016, Board meeting, staff delivered SFFAS 51, Insurance Programs, to sponsors for the 90-day review, which ends on January 17, 2017. FASAB expects to issue the Statement on January 18, 2017. The first phase of the risk assumed project will be completed with the issuance of SFFAS 51.
The Board reviewed staff’s high-level gap analysis presented in table 1: Analysis of Federal Accounting Standards in Relation to the IMF [International Monetary Fund] Recommendations for Disclosing Fiscal Risks and table 2 from the Australian Statement 8: Statement of Risks.
The Board agreed that an extensive gap analysis is necessary to determine the risk information that the consolidated financial report of the U.S. Government includes and how it is presented, the extent to which FASAB can align with enterprise risk management (ERM), and the Board’s preference for presenting risk assumed information going forward.
For the gap analysis, the Board agreed to determine the following:
- If federal government reporting is transparent enough for estimates and uncertainty around significant risks with a focus on broad risk categories, such as an economic downturn where revenues go down and benefit program costs go up
- If there is a significant gap in reporting to be addressed for individual risk items, such as treaties, commitments by the federal government, and inter-governmental dependencies with state and local governments
- How to present summarized risk events at the government-wide level for cross-cutting agency efforts, such as disaster relief, with access to detail at the agency level
In relation to FASAB aligning with the ERM effort, the Board recognizes that agencies are in different phases of development and implementation of ERM. The Board understands that ERM is not a CFO finance-focused project, but there are questions about who is doing the risk assumed project for the whole government. Therefore, FASAB appreciates agencies’ efforts and their willingness to share their progress to determine if FASAB’s risk assumed project can align with ERM.
In conclusion, staff will develop a gap analysis for discussion over a number of future Board meetings to determine how to present risk assumed information going forward. Issue Paper for October 2016 – Tab 2
August 24-25, 2016 Board Meeting
The Board reviewed the proposed Statement of Federal Financial Accounting Standards (SFFAS): Insurance Programs.
The Board made the following changes:
- Excluded programs that 1) provide grants and 2) benefits or financial assistance based on an individual’s or household’s income and/or assets
- Approved the section of the basis for conclusions that discusses exclusions
- Added content about the entire Risk Assumed project to the summary and basis for conclusions to inform readers why Insurance Programs is the first phase of the project
- Added a footnote to the basis for conclusions to explain a “Katrina type” hurricane
- Removed the “expected cash flow” definition because the liability for losses on remaining coverage measurement is now a flexible model and the definition is no longer necessary
- Agreed not to re-expose
The Board approved the pre-ballot with no further changes. Upon approval of the pre-ballot document, staff will send the final SFFAS out for ballot.
Issue Paper for August 2016 – Tab E
The Office of Management and Budget Circular A-123, Management’s Responsibility for Enterprise Risk Management and Internal Control
June 29-30, 2016 Board Meeting
The Board reviewed revisions based on responses to questions for respondents three through eight and paragraph ten—exclusions—from the Insurance Programs ED.
The Board approved updates to the following topics for consistency and clarity throughout the Statement: adverse events, insurance portfolios, claim adjustment expenses, and disclosures. The subject of disclosures comprised the introduction to disclosures, investing activities, insurance in-force, and uncertainty and shared risks.
The Board discussed and made decisions on the following aspects of the proposed Statement of Federal Financial Accounting Standards (SFFAS):
- The Board decided to provide only a reference to SFFAS 39, Subsequent Events: Codification of Accounting and Financial Reporting Standards Contained in the AICPA Statement on Auditing Standards for recognized and nonrecognized subsequent events to avoid supplementing or adding to SFFAS 39. In addition, the basis for conclusions will only reference major events.
- The Board decided to add “reasonable estimates” to the guidance to clarify their intent regarding the measurement of losses on remaining coverage.
- The Board decided to use the term “full cost” as defined in SFFAS 4, Managerial Cost Accounting Standards and Concepts instead of “gross cost.” Gross cost might cause preparers not to be clear regarding the costs the Board intended to be reported.
- The Board decided to change the effective date to September 30, 2018, to allow agencies enough time for implementation.
- The Board decided to retain entitlements as an exclusion with a clear definition of entitlements in relation to insurance programs.
Issue Paper for June 2016 – Tab A
April 27-28, 2016 Board Meeting
FASAB released the Insurance Programs ED on December 30, 2015, with comments requested by March 29, 2016. FASAB received 18 comment letters during this time. At the April 2016 meeting, staff presented analysis and recommended edits to the definitions and exclusions based on comments received from the first two questions by respondents.
The Board approved edits to the following terms:
- Insurance Program
- Incurred But Not Reported
- Insurance Claim
- Insurance Contract
- Cash Surrender Value
The Board decided that a public hearing was not necessary.
Staff will continue to analyze comments on questions 3 – 8 and anticipates presenting any recommended edits to the Board at the June meeting.
February 24-25, 2016 Board Meeting
The Risk Assumed-Insurance Programs project was not discussed at the February 2016 Board meeting because the Insurance Programs ED is open for comment until March 29, 2016.
FASAB is seeking input by March 29th on the proposed SFFAS entitled Insurance Programs. The ED proposes to establish three categories of insurance and related guidance: exchange transaction insurance programs other than life insurance, nonexchange transaction insurance programs, and life insurance programs. The proposal would rescind existing standards for insurance and guarantee programs in SFFAS 5, Accounting for Liabilities of The Federal Government, paragraphs 97-121.
Respondents are encouraged to provide the reasons for their positions. Both the proposal in PDF format and the specific questions raised in Microsoft Word format are available at http://www.fasab.gov/documents-for-comment/.
Please note that receipt of your response will be acknowledged by an email. If you do not receive a response, please contact us at 202-512-7350 to confirm receipt.
December 16-17, 2015 Board Meeting
The Insurance Programs exposure draft was published for comment on December 30, 2015. To provide concise, meaningful, and transparent information regarding insurance program costs and liabilities, the exposure draft proposes to establish three categories of insurance and related guidance: exchange transaction insurance programs other than life insurance, nonexchange transaction insurance programs, and life insurance programs. The proposal would rescind existing standards for insurance and guarantee programs in SFFAS 5, Accounting for Liabilities of The Federal Government, paragraphs 97-121. The requirements for this Statement would be effective for reporting periods beginning after September 30, 2017.
The Board requests exposure draft comments by March 29, 2016. To assist the Board with its deliberations, respondents are encouraged to provide the reasons for their positions. Both the exposure draft in PDF format and the specific questions raised in Microsoft Word format are available at the FASAB website /documents-for-comment/.
Issue Paper for December 2015 – Tab B
October 21-22, 2015 Board Meeting
At the October 2015 Board meeting, the Board reviewed the following sections of the Risk Assumed-Insurance Program Exposure Draft:
Exchange Transaction Insurance Programs Other Than Life Insurance
- Liability for Losses on Remaining Coverage:
The Board reviewed the standard for how to measure the estimated losses for the liability for losses on remaining coverage. The Board confirmed that expected value (EV) is the first approach an agency should consider for estimating losses. If EV is not feasible or appropriate to use then an agency can choose an alternative method. There was a significant discussion about when EV is not feasible or appropriate and which option (presented in the October 2015 Board memorandum) allows an alternative method without adding an extra burden to financial statement preparers. The Board approved option (c), with minor changes by staff, to provide agencies with the most flexibility.
- Streamlined Disclosures:
- Staff presented Factors for Determining Disclosures, a new section that includes guidance about materiality and referencing other disclosures. The Board approved this section and requested staff to make minor changes.
- The Board discussed the detailed cost and revenue schedule in par. 38. The Board requested that staff update this disclosure by providing a narrative alternative to the schedule.
- The Board discussed the liability balance for unpaid insurance claims schedule in par. 39. The Board approved keeping the schedule, yet requested staff to consolidate the current and prior year lines.
Life Insurance Programs
The Board discussed the liability for future benefits. They approved adding “including contract duration” (par. 52) to allow agencies to segregate out short-duration portfolios if they exist. In addition, the Board discussed whether life insurance has unearned premiums. The Board accepted the explanation that life insurance does not recognize unearned premiums because future net premiums are an adjustment against the liability and not separated out on the balance sheet.
Issue Paper for October 2015 – Tab F
August 26-27, 2015 Board Meeting
At the August 2015 Board meeting, the Board continued to review the proposed insurance standards. Proposed disclosures were discussed and a number of members were concerned with the volume of life insurance disclosures. They noted:
- the detail in some of the proposed standards may not be necessary even for material items;
- because this is a risk assumed standard, these disclosures should focus on the risk assumed elements of these programs and not everything about the program;
- agencies should be encouraged to disclose what is relevant with minimal required items,
- the financial statements should tell readers if the program has assumed more or less risk;
- disclosures should be streamlined for component level reporting, and even more so for the governmentwide report; and
- provide more flexibility using an if – then disclosure structure.
The Board also approved a minor change in the category titles.
Issue Paper for August 2015 – Tab H
June 24-25, 2015 Board Meeting
At the June 2015 Board meeting, the Board continued to review the updated proposed insurance standards for risk assumed. Staff provided the Board with the following updated information:
June 2015 – RA-Insurance Update Information
The following items were discussed:
Estimated Losses on Remaining Coverage:
The Board reviewed the proposed language for measuring estimating losses on remaining coverage and returned to their original plan to require expected value, with more definitive language. In the event that expected value is not feasible or appropriate, the most likely amount would then be required. All Board members approved, except Mr. McCall who was absent, and Mr. Engel who was sitting in for Mr. Dacey, stating that Mr. Dacey preferred the most likely amount first and then expected value. Board members noted that the approved order and language should clarify and address any audit issues.
The Board asked staff to provide a better transition from estimating losses on remaining coverage to subsequent events.
Proposed Insurance Program Categories:
Staff recommended three categories: 1) exchange revenue insurance programs other than life insurance, 2) nonexchange revenue insurance programs, and 3) life insurance programs.
Staff explained that SFFAS 7, Accounting for Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial Accounting, provides the definition for revenue types, and noted that SFFAS 7 and SFFAS 5, Accounting for Liabilities of The Federal Government, are in synch. Therefore, SFFAS 7 will identify whether a transaction is exchange or nonexchange and the related timing and recognition of revenue; while SFFAS 5 will govern when the associated loss becomes a liability.
Exchange revenue insurance programs other than life insurance category:
The exchange revenue insurance programs collect revenue through contracts/agreements. This category precludes separate categories for short- and long-duration contracts because the proposed standards will require disclosures by portfolio. Therefore, agencies should include short- and long-duration contracts in separate portfolios according to their similar characteristics.
The transactions that fall within this category may also need appropriations and/or borrowing for funding. Nonexchange revenue may also be collected in the form of fees and fines, not in relation to a contract, but in response to punitive actions. These additional types of funding should be captured in a proposed disclosure schedule. The Board approved the exchange revenue category.
Nonexchange revenue insurance programs category:
Nonexchange revenue programs collect money demanded by the government, such as dedicated taxes and regulated fees. Nonexchange transactions need to be tracked separately because they are not related to contracts and losses are only recognized when they occur. Therefore there will be no liability for losses on remaining coverage, only liabilities for unpaid claims. The Board approved the nonexchange revenue category.
Life insurance category:
Staff recommended life insurance as a separate category because: 1) life insurance has a different risk profile—death always occurs resulting in a payout, whereas an adverse event for exchange and nonexchange transactions might not occur, 2) SFFAS 5 already separates it out, and 3) there will be a liability on future policy benefits which is different than a liability for losses on remaining coverage. The Board approved the life insurance category.
The government-wide (GW) financial report:
In relation to the proposed disclosure schedules in each category, the Board wanted to know if staff will recommend the same detail at the GW level. Staff noted that only certain pieces will be proposed. Staff also acknowledged Treasury’s comment that FASAB can only require information at the GW level that is required at the component level, and will address the GW standards once the standards for all of the categories have been addressed.
Staff will present the proposed standards for insurance categories at the August 2015 meeting; all other updates will be provided at the October 2015 meeting.
Issue Paper for June 2015 – Tab E
April 29-30, 2015 Board Meeting
Staff continued to review the updated proposed insurance standards at the April 2015 Board meeting.
The Board approved the following items:
- Definitions to clarify the recognition and measurement of claims incurred but not recorded (IBNR).
- The wording…”Estimates should be based on … using all available information that existed at the balance sheet date, experience with previous transactions and historical trends, and, as appropriate, the views of independent experts… in the recognition and measurement of the liability for losses on remaining coverage.
The Board also identified changes to the draft measurement guidance and disclosure requirements.
Issue Paper for April 2015 – Tab D
February 25-26, 2015 Board Meeting
Correction: At the December 2014 Board Meeting, representatives from several insurance programs presented an education session. We apologize for not including Michael Drewel, Accounting Officer from the Department of Agriculture (USDA), Risk Management Agency (RMA), Federal Crop Insurance Corp (FCIC).
During the February 2015 Board meeting staff reviewed the proposed standards. The Board made editorial changes to the scope and criteria sections. The Board discussed and approved staff conducting more research to identify and present classifications that will capture all current and future insurance programs. The Board discussed and approved the name “Liability for Losses for Remaining Coverage” as an alternative to “Liability for Premium Deficiency” and adding a definition because this is not a generally known or accepted term.
The Board discussed draft disclosures in paragraph 23. Paragraph 23 provided “For each major insurance program and collectively for all other insurance programs the following information should be disclosed.” The Board agreed that:
- Major” is hard to define in relation to materiality,
- There is no existing workable definition of “program” so “major category of insurance” might work better.
The Board discussed the proposed disclosures of financial information, modeled after the dedicated collection note, and did not reach a decision about what detail to include and at what level to report it, for example at the agency and/or combined financial report (CFR). Staff will provide alternatives for discussion at the April meeting.
The Board discussed the guidance for measuring liabilities for losses on remaining coverage and approved use of the expected value of estimated outflows net of unearned premiums.
Issue Paper for February 2015 – Tab G
- Margo E. Erny, Chief Financial Officer (CFO)
- Shanda Sander, Special Assistant to CFO
- Tom Worth, Senior Actuary
- Jennifer Raab, Accountant , Financial Statements and Reporting Branch-OCFO
- Thomas Hayes, Chief Actuary
- Tom Brown, Insurance Examiner
National Flood Insurance Program (NFIP) Presentation – Insurance Program Education Session (PDF)
- The potential to differentiate between insurance programs who receive appropriations to finance subsidies versus those who borrow to finance subsidies,
- The classification of revenue for insurance programs that receive subsidies as exchange or non/exchange revenue, and
- The need to distinguish between short- and long-duration insurance contracts.
- Removed “other than a defaulted debt obligation” reference from the definition and adverse event criteria, and kept it only in the exclusions.
- Removed the term, “non-loan guarantees,” and added a footnote that states—Insurance programs will also include guarantee programs not designed for loan/debt guarantees
- Changed the first exclusion to read “Loan guarantee programs as defined in SFFAS 2…,” to include all programs captured in SFFAS 2.
- Removed reference to the Stafford Act in the exclusion section, for consistency with other standards, and added discretional funding as one type of assistance provided by disaster relief programs.
- Added federal self-insurance programs as an exclusion.
- Exchange Revenue will be disclosed by major category. Staff will identify general categories as examples. The Board also suggested disclosures about events that caused significant changes from the prior to current year amounts.
- Borrowing: Some insurance programs have authority to borrow funds. The disclosure for borrowing generated a lot of discussion among Board members because borrowing creates a liability. Board members were interested in disclosures about events creating the shortfall that led to the liability, and the insurance program’s ability to pay it back. The Board also wanted to consider disclosures about why insurance programs could not pay the borrowing back. Some members were more interested in disclosure of this descriptive information than how much was borrowed from year to year.
- Risk Assumed: The current risk assumed information is reported as required supplementary information (RSI). The staff believes current standards envision projections of expected cash flows. Staff explained to the Board that due to confusion around what was expected in SFFAS 5, no insurance programs were providing projections in their financial reports. However, some do provide 10 year projections in their budget reports. There are some insurance programs that provide trend information, usually going back 10 years, in their financial reports
- Distinguishing insurance/non-loan guarantee programs from loan guarantee programs.
- Use of the term “non-loan guarantees” and what value it adds.
- Clarifying the exclusion of disaster relief programs in relation to the type of compensation provided.
- law or otherwise enforceable by law,
- related regulations,
- agency policies, or
- explicit arrangements or agreements
- Lack of prominence of the word “risk” (in the second sentence of the definition) and asked staff to rewrite it to move to the first sentence.
- Confusion between non-loan guarantees that this standard will address and loan guarantees that are captured under the Federal Credit Reform Act in the Statement of Federal Financial Accounting Standards 2: Accounting for Direct Loans and Loan Guarantees [SFFAS 2 (as amended)].
- Staff explained that loan guarantees are addressed in the first exclusion. Therefore, the Board directed staff to also include “non-loan guarantees” in the title and definition to provide clarity.
- Clarity as to whether these programs really manage risk. Therefore, the word “manages” may not be appropriate. In updating the definition, the word “manages” was removed.
- law or otherwise enforceable by law,
- related regulations,
- agency policies, or
- explicit arrangements or agreements
- Federal Deposit Insurance Corporation (FDIC)
- Pension Benefit Guarantee Corporation (PBGC)
- Farm Credit System Insurance Corporation (FCSIC)
- Overseas Private Investment Corporation (OPIC)
- 834-10-55-1 An insurance contract is a contract under which one party (the issuing entity) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or its designated beneficiary if a specified uncertain future event (the insured event) adversely affects the policy holder.
- Propose a definition for federal insurance and non-loan guarantee programs.
- Develop unique characteristics of federal insurance and non-loan guarantee programs.
- Research and identify federal non-loan guarantee programs and their unique characteristics.
- Follow up with those federal insurance entities currently following FASB GAAP once the FASB insurance contract exposure draft is released.
- Prepare an analysis that assesses the conceptual similarities and differences between federal loan guarantee programs and federal insurance and non-loan guarantee programs to evaluate if the insurance and guarantee standards should mirror those of credit reform accounting for loan guarantees
- Research federal reinsurance to determine if the topic should be included within the project’s scope.
- Updated estimates and assumptions
- Current measurement of risk
- Reflect time value of money
- Market consistent estimate
The risk assumed project was not on the agenda at the April meeting; however, an update was provided on the project’s status. The risk assumed project is taking a broad look at all types of transactions and events that may result in future outflows as a result of the federal government’s mission, operations, and current or past actions. Staff is currently developing task forces on two explicit groupings of risk assumed: (1) commitments and obligations, including contracts, grants, and treaties and (2) insurance and guarantees. Other task forces will follow as the project progresses.
At the August 24, 2011, board meeting, members discussed a project plan proposal from staff. Members strongly supported staff’s plan so staff will begin preliminary research on the Risk Assumed Project by developing an inventory of risk assumed by the federal government, a detailed task force plan, and a list of potential task force members.