National Western Life Group Earnings 2019-09-30
NWLI 10Q Quarterly Report
Comparables ($MM TTM)
Ticker
M Cap
Assets
Liab
Rev
G Profit
Net Inc
EBITDA
EV
G Margin
EV/EBITDA
ROA
PJH
AEB
GL
SLF
MFC
ATH
138,980
126,615
12,072
0
1,964
2,023
-5,239
0%
-2.6
1%
LFC
3,254,403
2,931,113
0
0
0
0
-50,792
0%
AEG
392,633
370,065
0
0
0
0
-3,725
0%
NWLI
12,613
10,558
679
0
136
165
-141
0%
-0.9
1%
CIA
1,702
1,466
246
0
-25
5
-35
0%
-6.5
-1%
Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2019
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OFTHE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 000-55522
NATIONAL WESTERN LIFE GROUP, INC.
(Exact name of Registrant as specified in its charter)
Delaware
47-3339380
(State or Other Jurisdiction of Incorporation)
(IRS Employer Identification No.)
Copy History
10801 N. Mopac Expy Bldg 3
Austin,
Texas
78759
(512)
836-1010
(Address of Principal Executive Offices) (Zip Code)
(Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). : Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of "accelerated filer." "large accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer (Do not check if a smaller reporting company) ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 6, 2019 , the number of shares of Registrant's common stock outstanding was: Class A – 3,436,020 and Class B - 200,000 .
Copy History
TABLE OF CONTENTS
Page
September 30, 2019 (Unaudited) and December 31, 2018
For the Three Months Ended September 30, 2019 and 2018 (Unaudited)
For the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
For the Three Months Ended September 30, 2019 and 2018 (Unaudited)
For the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
For the Three Months Ended September 30, 2019 and 2018 (Unaudited)
For the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
For the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Copy History
(Unaudited)
ASSETS
September 30,
December 31,
Investments:
Debt securities held to maturity, at amortized cost (fair value: $7,537,665 and $7,228,268)
$
7,224,459
7,285,254
Debt securities available for sale, at fair value (cost: $3,265,807 and $3,008,624)
3,409,466
2,946,059
Mortgage loans, net of allowance for possible losses ($675 and $675)
224,048
203,180
Policy loans
80,272
54,724
Derivatives, index options
106,364
14,684
Equity securities, at fair value (cost: $14,120 and $14,329)
19,462
17,491
Other long-term investments
62,037
56,851
Total investments
11,126,108
10,578,243
Cash and cash equivalents
171,509
131,976
Deferred policy acquisition costs
736,826
841,704
Deferred sales inducements
108,425
133,714
Value of business acquired
139,900
—
Accrued investment income
98,618
96,338
Federal income tax receivable
11,346
17,934
Other assets
166,862
131,782
Total assets
$
12,559,594
11,931,691
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
Copy History
(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
September 30,
December 31,
LIABILITIES:
Future policy benefits:
Universal life and annuity contracts
$
9,329,867
9,608,850
Traditional life reserves
832,859
135,436
Other policyholder liabilities
129,715
135,694
Deferred Federal income tax liability
47,665
39,384
Other liabilities
127,836
111,550
Total liabilities
10,467,942
10,030,914
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS’ EQUITY:
Common stock:
Class A - $.01 par value; 7,500,000 shares authorized; 3,436,020 issued and outstanding in 2019 and 2018
34
34
Class B - $.01 par value; 200,000 shares authorized, issued, and outstanding in 2019 and 2018
2
2
Additional paid-in capital
41,716
41,716
Accumulated other comprehensive income (loss)
59,977
(37,015
)
Retained earnings
1,989,923
1,896,040
Total stockholders’ equity
2,091,652
1,900,777
Total liabilities and stockholders' equity
$
12,559,594
11,931,691
Note: The Condensed Consolidated Balance Sheet at December 31, 2018 has been derived from the audited Consolidated Financial Statements as of that date.
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Months Ended September 30, 2019 and 2018
(Unaudited)
(In thousands, except per share amounts)
Copy History
2019
2018
Premiums and other revenues:
Universal life and annuity contract charges
$
37,840
38,287
Traditional life premiums
24,099
4,209
Net investment income
108,456
175,553
Other revenues
3,273
5,111
Net realized investment gains (losses):
Total other-than-temporary impairment (“OTTI”) gains (losses)
(1,943
)
3
Portion of OTTI (gains) losses recognized in other comprehensive income
(2
)
(3
)
Net OTTI losses recognized in earnings
(1,945
)
—
Other net investment gains (losses)
1,443
2,275
Total net realized investment gains (losses)
(502
)
2,275
Total revenues
173,166
225,435
Benefits and expenses:
Life and other policy benefits
39,918
5,744
Amortization of deferred policy acquisition costs and value of business acquired
22,998
26,775
Universal life and annuity contract interest
59,445
124,145
Other operating expenses
25,813
24,037
Total benefits and expenses
148,174
180,701
Earnings before Federal income taxes
24,992
44,734
Federal income taxes
5,003
9,093
Net earnings
$
19,989
35,641
Basic earnings per share:
Class A
$
5.65
$
10.08
Class B
$
2.83
$
5.04
Diluted earnings per share:
Class A
$
5.65
$
10.08
Class B
$
2.83
$
5.04
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Nine Months Ended September 30, 2019 and 2018
(Unaudited)
(In thousands, except per share amounts)
Copy History
2019
2018
Premiums and other revenues:
Universal life and annuity contract charges
$
112,703
116,753
Traditional life premiums
65,492
13,282
Net investment income
388,211
358,100
Other revenues
13,652
15,396
Net realized investment gains (losses):
Total other-than-temporary impairment (“OTTI”) gains (losses)
(7,840
)
9
Portion of OTTI (gains) losses recognized in other comprehensive income
(7
)
(9
)
Net OTTI losses recognized in earnings
(7,847
)
—
Other net investment gains (losses)
11,549
5,582
Total net realized investment gains (losses)
3,702
5,582
Total revenues
583,760
509,113
Benefits and expenses:
Life and other policy benefits
101,764
44,607
Amortization of deferred policy acquisition costs and value of business acquired
86,573
90,073
Universal life and annuity contract interest
200,500
183,316
Other operating expenses
77,196
72,467
Total benefits and expenses
466,033
390,463
Earnings before Federal income taxes
117,727
118,650
Federal income taxes
23,844
23,668
Net earnings
$
93,883
94,982
Basic earnings per share:
Class A
$
26.55
$
26.86
Class B
$
13.28
$
13.43
Diluted earnings per share:
Class A
$
26.55
$
26.86
Class B
$
13.28
$
13.43
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Three Months Ended September 30, 2019 and 2018
(Unaudited)
(In thousands)
Copy History
2019
2018
Net earnings
$
19,989
35,641
Other comprehensive income (loss), net of effects of deferred costs and taxes:
Unrealized gains (losses) on securities:
Net unrealized holding gains (losses) arising during period
15,586
(1,416
)
Net unrealized liquidity gains (losses)
1
—
Reclassification adjustment for net amounts included in net earnings
1,380
(936
)
Net unrealized gains (losses) on securities
16,967
(2,352
)
Foreign currency translation adjustments
52
20
Benefit plans:
Amortization of net prior service cost and net gain (loss)
(504
)
2,801
Other comprehensive income (loss)
16,515
469
Comprehensive income (loss)
$
36,504
36,110
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Nine Months Ended September 30, 2019 and 2018
(Unaudited)
(In thousands)
Copy History
2019
2018
Net earnings
$
93,883
94,982
Other comprehensive income, net of effects of deferred costs and taxes:
Unrealized gains (losses) on securities:
Net unrealized holding gains (losses) arising during period
93,730
(51,238
)
Net unrealized liquidity gains (losses)
3
2
Reclassification adjustment for net amounts included in net earnings
4,252
(2,533
)
Net unrealized gains (losses) on securities
97,985
(53,769
)
Foreign currency translation adjustments
519
1,227
Benefit plans:
Amortization of net prior service cost and net gain (loss)
(1,512
)
8,403
Other comprehensive income (loss)
96,992
(44,139
)
Comprehensive income (loss)
$
190,875
50,843
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
Copy History
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Months Ended September 30, 2019 and 2018
2019
2018
Common stock:
Balance at beginning of period
$
36
36
Shares exercised under stock option plan
—
—
Balance at end of period
36
36
Additional paid-in capital:
Balance at beginning of period
41,716
41,716
Shares exercised under stock option plan
—
—
Balance at end of period
41,716
41,716
Accumulated other comprehensive income:
Unrealized gains (losses) on non-impaired securities:
Balance at beginning of period
50,730
(22,169
)
Change in unrealized gains (losses) during period, net of tax
16,966
(2,352
)
Cumulative effect of change in accounting principle, net of tax
—
—
Balance at end of period
67,696
(24,521
)
Unrealized losses on impaired held to maturity securities:
Balance at beginning of period
(5
)
(8
)
Amortization
2
2
Other-than-temporary impairments, non-credit, net of tax
—
—
Additional credit loss on previously impaired securities
—
—
Change in shadow deferred policy acquisition costs
(1
)
(1
)
Balance at end of period
(4
)
(7
)
Unrealized losses on impaired available for sale securities:
Balance at beginning of period
(2
)
(1
)
Other-than-temporary impairments, non-credit, net of tax
—
—
Change in shadow deferred policy acquisition costs
—
(1
)
Recoveries, net of tax
—
—
Balance at end of period
(2
)
(2
)
Continued on Next Page
Copy History
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (continued)
2019
2018
Foreign currency translation adjustments:
Balance at beginning of period
5,044
4,430
Change in translation adjustments during period
52
20
Balance at end of period
5,096
4,450
Benefit plan liability adjustment:
Balance at beginning of period
(12,305
)
(16,993
)
Amortization of net prior service cost and net loss, net of tax
(504
)
2,801
Balance at end of period
(12,809
)
(14,192
)
Accumulated other comprehensive income (loss) at end of period
59,977
(34,272
)
Retained earnings:
Balance at beginning of period
1,969,934
1,839,896
Net earnings
19,989
35,641
Balance at end of period
1,989,923
1,875,537
Total stockholders' equity
$
2,091,652
1,883,017
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
Copy History
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 2019 and 2018
2019
2018
Common stock:
Balance at beginning of period
$
36
36
Shares exercised under stock option plan
—
—
Balance at end of period
36
36
Additional paid-in capital:
Balance at beginning of period
41,716
41,716
Shares exercised under stock option plan
—
—
Balance at end of period
41,716
41,716
Accumulated other comprehensive income:
Unrealized gains (losses) on non-impaired securities:
Balance at beginning of period
(30,286
)
33,664
Change in unrealized gains (losses) during period, net of tax
97,982
(53,771
)
Cumulative effect of change in accounting principle, net of tax
—
(4,414
)
Balance at end of period
67,696
(24,521
)
Unrealized losses on impaired held to maturity securities:
Balance at beginning of period
(7
)
(10
)
Amortization
6
7
Other-than-temporary impairments, non-credit, net of tax
—
—
Additional credit loss on previously impaired securities
—
—
Change in shadow deferred policy acquisition costs
(3
)
(4
)
Balance at end of period
(4
)
(7
)
Unrealized losses on impaired available for sale securities:
Balance at beginning of period
(2
)
(1
)
Other-than-temporary impairments, non-credit, net of tax
—
—
Change in shadow deferred policy acquisition costs
—
(1
)
Recoveries, net of tax
—
—
Balance at end of period
(2
)
(2
)
Continued on Next Page
Copy History
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY (continued)
2019
2018
Foreign currency translation adjustments:
Balance at beginning of period
4,577
3,223
Change in translation adjustments during period
519
1,227
Balance at end of period
5,096
4,450
Benefit plan liability adjustment:
Balance at beginning of period
(11,297
)
(22,595
)
Amortization of net prior service cost and net loss, net of tax
(1,512
)
8,403
Balance at end of period
(12,809
)
(14,192
)
Accumulated other comprehensive income (loss) at end of period
59,977
(34,272
)
Retained earnings:
Balance at beginning of period
1,896,040
1,776,141
Cumulative effect of change in accounting principle, net of tax
—
4,414
Net earnings
93,883
94,982
Balance at end of period
1,989,923
1,875,537
Total stockholders' equity
$
2,091,652
1,883,017
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
Copy History
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2019 and 2018
(Unaudited)
(In thousands)
2019
2018
Cash flows from operating activities:
Net earnings
$
93,883
94,982
Adjustments to reconcile net earnings to net cash from operating activities:
Universal life and annuity contract interest
200,500
183,316
Surrender charges and other policy revenues
(25,608
)
(28,429
)
Realized (gains) losses on investments
(3,702
)
(5,582
)
Accretion/amortization of discounts and premiums, investments
1,798
(86
)
Depreciation and amortization
8,185
8,769
(Increase) decrease in value of equity securities
(2,639
)
(254
)
(Increase) decrease in value of derivatives
(63,127
)
(35,581
)
(Increase) decrease in deferred policy acquisition and sales inducement costs, and value of business acquired
53,837
31,645
(Increase) decrease in accrued investment income
3,837
(4,245
)
(Increase) decrease in other assets
280
(12,489
)
Increase (decrease) in liabilities for future policy benefits
6,960
(11,566
)
Increase (decrease) in other policyholder liabilities
(19,847
)
1,520
Increase (decrease) in Federal income tax liability
6,486
(696
)
Increase (decrease) in deferred Federal income tax
(17,502
)
4,680
Increase (decrease) in other liabilities
(1,340
)
(3,882
)
Net cash provided by operating activities
242,001
222,102
Cash flows from investing activities:
Proceeds from sales of:
Debt securities available for sale
80,528
13,098
Other investments
35,871
2,749
Proceeds from maturities and redemptions of:
Debt securities held to maturity
486,344
360,036
Debt securities available for sale
189,944
168,638
Derivatives, index options
28,457
160,094
Property and equipment
—
8
Purchases of:
Debt securities held to maturity
(161,617
)
(391,548
)
Debt securities available for sale
(127,811
)
(228,172
)
Equity securities
(977
)
(1,678
)
Derivatives, index options
(57,443
)
(63,524
)
Other investments
(7,314
)
(5,581
)
Property and equipment
(2,497
)
(3,070
)
Payment to acquire businesses, net of cash acquired
(189,121
)
—
Continued on Next Page
Copy History
NATIONAL WESTERN LIFE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Nine Months Ended September 30, 2019 and 2018
(Unaudited)
(In thousands)
2019
2018
Principal payments on mortgage loans
22,384
32,374
Cost of mortgage loans acquired
(47,744
)
(24,803
)
Decrease (increase) in policy loans
2,580
1,931
Net cash provided by/(used in) investing activities
251,584
20,552
Cash flows from financing activities:
Deposits to account balances for universal life and annuity contracts
292,551
442,795
Return of account balances on universal life and annuity contracts
(747,260
)
(749,245
)
Net cash provided by (used in) financing activities
(454,709
)
(306,450
)
Effect of foreign exchange
657
1,553
Net increase (decrease) in cash and cash equivalents
39,533
(62,243
)
Cash and cash equivalents at beginning of period
131,976
217,624
Cash and cash equivalents at end of period
$
171,509
155,381
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest
$
252
30
Income taxes
$
34,758
19,683
Noncash operating activities:
Net deferral and amortization of sales inducements
$
(13,501
)
(8,152
)
Noncash investing activities:
Contingent consideration to acquire businesses
$
3,965
—
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1)
CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments necessary to present fairly the financial position of National Western Life Group, Inc. ("NWLGI") and its wholly owned subsidiaries (“Company”) as of September 30, 2019 , and the results of its operations and its cash flows for the three and nine months ended September 30, 2019 and September 30, 2018 . Such adjustments are of a normal recurring nature. The results of operations for the nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the full year. It is recommended that these Condensed Consolidated Financial Statements be read in conjunction with the audited consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 which is accessible free of charge through the Company's internet site at www.nwlgi.com or the Securities and Exchange Commission internet site at www.sec.gov . The Condensed Consolidated Balance Sheet at December 31, 2018 has been derived from the audited consolidated financial statements as of that date.
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of NWLGI and its wholly owned subsidiaries: National Western Life Insurance Company ("NWLIC" or "National Western"), Regent Care San Marcos Holdings, LLC, NWL Services, Inc., and N.I.S. Financial Services, Inc. ("NIS"). National Western's wholly owned subsidiaries include The Westcap Corporation, NWL Financial, Inc., NWLSM, Inc., Braker P III, LLC, and Ozark National Life Insurance Company ("Ozark National"). The results of operations for Ozark National and NIS include the eight months ended September 30, 2019 subsequent to their acquisition effective January 31, 2019. All significant intercorporate transactions and accounts have been eliminated in consolidation.
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates in the accompanying Condensed Consolidated Financial Statements include: (1) liabilities for future policy benefits, (2) valuation of derivative instruments, (3) recoverability and amortization of deferred policy acquisition costs ("DPAC") and value of business acquired ("VOBA"), (4) valuation allowances for deferred tax assets, (5) other-than-temporary impairment losses on debt securities, (6) commitments and contingencies, and (7) valuation allowances for mortgage loans and real estate. During the first nine months of 2019, the Company incorporated accounting estimates for business combinations, value of business acquired, and fair value measurement as a result of its acquisition of Ozark National and NIS.
The table below shows the unrealized gains and losses on available-for-sale securities that were reclassified out of accumulated other comprehensive income for the three and nine months ended September 30, 2019 and September 30, 2018 .
Copy History
Affected Line Item in the
Statements of Earnings
Amount Reclassified From Accumulated Other Comprehensive Income
Three Months Ended September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
(In thousands)
Other net investment gains (losses)
$
198
1,185
2,465
3,206
Net OTTI losses recognized in earnings
(1,945
)
—
(7,847
)
—
Earnings before Federal income taxes
(1,747
)
1,185
(5,382
)
3,206
Federal income taxes
(367
)
249
(1,130
)
673
Net earnings
$
(1,380
)
936
(4,252
)
2,533
NATIONAL WESTERN LIFE GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(2)
NEW ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements not yet adopted
In August 2018, the FASB issued ASU 2018-12 Financial Services-Insurance (Topic 944) - Targeted Improvements to the Accounting for Long-Duration Contracts . This update is aimed at improving the Codification as it relates to long-duration contracts which will improve the timeliness of recognizing changes in the liability for future policy benefits, simplify accounting for certain market-based options, simplify the amortization of deferred acquisition costs, and improve the effectiveness of required disclosures. Amendments include the following:
A. Require insurance entity to (1) review and update assumptions used to measure cash flows at least annually (with changes recognized in net income) and (2) update discount rate assumption at each reporting date (with changes recognized in other comprehensive income).
B. Require insurance entity to measure all market risk benefits associated with deposit (i.e. account balance) contracts at fair value, with change in fair value attributable to change in instrument-specific credit risk recognized in other comprehensive income.
C. Simplify amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins and require those balances be amortized on constant level basis over expected term of related contract. Deferred acquisition costs are required to be written off for unexpected contract terminations but are not subject to impairment test.
D. Require insurance entity to add disclosures of disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs. Insurance entity must also disclose information about significant inputs, judgments, assumptions, and methods used in measurement, including changes in those inputs, judgments, and assumptions, and the effect of those changes on measurement.
These updates are required to be applied retrospectively to the earliest period presented in the financial statements for periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In August 2018, FASB issued ASU 2018-13 F air Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure requirements for Fair Value Measurement. This update removed disclosures for 1) amount of and reasons for transfers between Level 1 and Level 2 for fair value hierarchy, 2) policy for timing of transfers between levels, 3) valuation process for Level 3 fair value measurements. This update also added disclosure requirement as follows: 1) changes in unrealized gains and losses for the period included in OCI for recurring Level 3 fair value measurements held at end of reporting period; 2) range and weighted average (or other reasonable quantitative measurement) of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments will be effective for interim periods beginning after December 15, 2019. Adoption of the guidance is not expected to have a material effect on the Company’s results of operations or financial position.
