Of all the industry-specific accounting requirements within U.S. GAAP, accounting for insurance companies is arguably one of the most difficult with it’s different accounting models for different types of contracts under ASC 944, Financial Services - Insurance, GAAP vs. statutory accounting principles (SAP), reinsurance, and accounting for investments at fair value are just some of the reasons! Is your head spinning? Fear not!
The GAAP Dynamics team has been teaching insurance industry courses for over ten years in the classroom as instructor-led training (ILT) for our clients and we’re now making this knowledge available virtually! This collection of 9 eLearning courses, totaling 12 CPE hours, will help you understand the fundamentals of the insurance industry. Below I’ll provide a brief overview of each course included in this collection.
1. Insurance Industry Fundamentals: Industry Overview (1.0 CPE)
Our industry overview course begins with an explanation of insurance risk and insurable risks before describing types of insurers and the insurance contracts they write, focusing on identifying the differences between short-duration and long-duration contracts. We then walk through the four core activities of insurers before discussing how insurer’s make money and calculate profitability.
A discussion of external reporting requirements and statutory accounting differences occurs to conclude the course. This is the course that lays the groundwork of the whole collection!
2. Insurance Industry Fundamentals: Property & Casualty (P&C) Insurance (2.0 CPE)
Property and casualty (P&C) insurance entities have various lines of business, which we will overview in this course. The majority of P&C insurance contracts are classified as short-duration contracts under ASC 944. We’ll discuss the accounting and reporting for premiums, assess whether policy acquisition costs should be capitalized and how to subsequently amortize them, look at the components and the accounting for claims and reserves, and evaluate the need for premium deficiency liabilities. Major differences between U.S. GAAP and statutory accounting practices (SAP) are also discussed.
3. Insurance Industry Fundamentals: Reinsurance Contracts (1.0 CPE)
Insurance contracts allow individuals and organizations to transfer their risk of a large exposure to an insurance company in exchange for periodic premiums paid to the insurer. But how do the insurance companies get insurance for the risks they are protecting others against? Reinsurance!
Reinsurance contracts are financial transactions in which risk is transferred from an insurance company to a reinsurance company in exchange of premiums – basically reinsurance is insurance for the insurance companies! This course discusses the logic behind these transactions by showing common types and forms of reinsurance. The accounting treatment focuses on the concept of risk transfer, which we’ll cover in this course.
4. Fair Value: Overview of ASC 820 (1.5 CPE)
Insurance entities are no stranger to the concept of fair value – from accounting for their investments, including investments in associates, impairment of various assets, and business combinations, understanding fair value is critical! This course explains the key concepts of ASC 820, Fair Value Measurement, including the definition of fair value, market participant assumptions, orderly transactions, exit prices, and principal markets.
Approaches to determine fair value measurements, including inputs and the classifications within the fair value hierarchy are discussed before the course concludes with a look at disclosure requirements under ASC 820.
5. Fair Value: Advanced Issues (1.5 CPE)
Because fair value is such an important concept, we’ve included a second course to explore some of the more advanced fair value measurement issues. We dive into detail surrounding markets (active, inactive and not orderly), the use of net asset value (NAV) per share and when it can be used as a practical expedient to measuring fair value, and fair value liability considerations.
6. & 7. Investments: Equity Securities (1.0 CPE) and Investments: Debt Securities (1.5 CPE)
Insurers invest in both equity and debt securities.
The equity securities course will help you identify investments and other ownership interests that are within the scope of ASC 321, Investments – Equity Securities. The concept of readily determinable fair value is explained prior to the accounting and reporting requirements for investments in equity securities.
There are three classifications of debt securities under ASC 320, Investments – Debt Securities: Trading, Held-to-maturity and Available-for-sale. The course explains the characteristics of each classification before we describe their different accounting treatments for initial recognition and subsequent measurement. Credit loss and impairment requirements applicable to debt securities and an overview of key disclosure requirements is provided.
8. Derivatives: Characteristics and Scope Exceptions (1.0 CPE)
Insurers often utilize derivatives to mitigate risks associated with the mismatch in timing of their cash inflows and outflows. This course provides examples of common types of derivative instruments, explains the characteristics required to be a derivative under ASC 815, Derivatives and Hedging, and discusses scope exceptions. Next, the course explains the accounting for derivative instruments in accordance with U.S. GAAP.
9. Credit Losses: Introduction to the CECL Model (1.5 CPE)
Insurance entities must utilize the provisions in ASC 326, Financial Instruments – Credit Losses. This model isn’t just for bank loans! Held-to-maturity debt securities and reinsurance recoverables are both in the scope of the current expected credit loss (CECL) model.
The course begins with an explanation of the instruments in scope, then provides an overview of the initial recognition accounting, subsequent measurement, and required disclosures associated with the CECL model. Key aspects to forming an estimate of expected credit losses are described in this course.
Online course collection
We’ve now briefly gone through each of the courses that make up our Insurance Industry Fundamentals course collection. You can purchase an individual course or the collection as a whole (if you purchase the full collection you’ll save over 40%).
Have an insurance question? Let’s talk! Looking for an update on recent changes in the insurance industry? Check out our recently released annual insurance update!
About GAAP Dynamics
We’re a DIFFERENT type of accounting training firm. We don’t think of training as a “tick the box” exercise, but rather an opportunity to empower your people to help them make the right decisions at the right time. Whether it’s U.S. GAAP training, IFRS training, or audit training, we’ve helped thousands of professionals since 2001. Our clients include some of the largest accounting firms and companies in the world. As lifelong learners, we believe training is important. As CPAs, we believe great training is vital to doing your job well and maintaining the public trust. We want to help you understand complex accounting matters and we believe you deserve the best training in the world, regardless of whether you work for a large, multinational company or a small, regional accounting firm. We passionately create high-quality training that we would want to take. This means it is accurate, relevant, engaging, visually appealing, and fun. That’s our brand promise. Want to learn more about how GAAP Dynamics can help you? Let’s talk!
Disclaimer
This post is published to spread the love of GAAP and provided for informational purposes only. Although we are CPAs and have made every effort to ensure the factual accuracy of the post as of the date it was published, we are not responsible for your ultimate compliance with accounting or auditing standards and you agree not to hold us responsible for such. In addition, we take no responsibility for updating old posts, but may do so from time to time.
Comments (1)
Owais Ahmed:
Dec 27, 2022 at 06:28 AM
Very good article
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