Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2023

ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. ASU 2018-12 requires changes to the measurement and disclosure of long-duration insurance contracts. In November 2020, the FASB issued an ASU that delayed the effective date of ASU 2018-12 to interim and annual reporting periods beginning after December 15, 2022.

Related to the company's term and whole life products included in life policy and investment contract reserves, the new guidance requires that cash flow assumptions be reviewed at least annually to determine any necessary updates. Additionally, the discount rate assumption is required to be updated quarterly based on upper-medium grade fixed-income instrument yields (market value discount rates). The life policy and investment contract reserves balance is adjusted through insurance losses and contract holders' benefits for cash flow assumption updates and through accumulated other comprehensive income (AOCI) for discount rate updates.

These ASUs also amend the previous guidance related to life deferred policy acquisition costs by requiring amortization of those costs on a constant level basis for a group of contracts that approximates straight-line and the removal of shadow deferred policy acquisition costs for universal life and deferred annuity products. These ASUs also require entities to provide additional disclosures including disaggregated rollforwards of the life policy and investment contract reserves, separate account liabilities and life deferred policy acquisition costs.

We adopted these ASUs on a modified retrospective basis on January 1, 2023, resulting in an after-tax increase to shareholders' equity of $31 million.

The following table illustrates the effect of adopting ASU 2018-12 in the condensed consolidated balance sheets:


(Dollars in millions)	March 31, 2023		December 31, 2022
			As originally reported		As adjusted		Difference
Reinsurance recoverable	$	698	$	640	$	665	$	25
Prepaid reinsurance premiums	57		79		51		(28)
Deferred policy acquisition costs	1,048		1,014		1,013		(1)
Total assets	30,474		29,736		29,732		(4)
Life policy and investment contract reserves	3,059		3,059		3,015		(44)
Deferred income tax	1,104		1,045		1,054		9
Total liabilities	19,733		19,205		19,170		(35)
Retained earnings	11,818		11,702		11,711		9
Accumulated other comprehensive income	(527)		(636)		(614)		22
Total shareholders' equity	10,741		10,531		10,562		31
Total liabilities and shareholders' equity	30,474		29,736		29,732		(4)

The following table illustrates the effect of adopting ASU 2018-12 in the condensed consolidated statements of income and condensed consolidated statements of comprehensive income:


(Dollars in millions, except per share data)	Three months ended March 31,
	2023		2022
			As originally reported		As adjusted		Difference
Earned premiums	$	1,918	$	1,690	$	1,693	$	3

Insurance losses and contract holders' benefits	1,398		1,039		1,032		(7)
Underwriting, acquisition and insurance expenses	556		519		520		1

Deferred income tax expense	27		(128)		(126)		2

Net Income (Loss)	225		(273)		(266)		7
Change in life policy reserves, reinsurance recoverable and other, net of tax	(36)		—		155		155
Other comprehensive income (loss)	87		(589)		(434)		155
Comprehensive Income (Loss)	312		(862)		(700)		162
Net income (loss) per share:
Basic	$	1.43	$	(1.70)	$	(1.66)	$	0.04
Diluted	1.42		(1.70)		(1.66)		0.04

The adoption of ASU 2018-12 did not have a material impact on the company's condensed consolidated cash flows.

The table below shows the ASU 2018-12 adoption impacts to the life policy and investment contract reserves as of January 1, 2021 (transition date), pre-tax:


(Dollars in millions)	Term		Whole life		Deferred annuity		Universal life		Other		Total
At January 1, 2021
Balance, pre-adoption at December 31, 2020	$	901	$	363	$	761	$	567	$	323	$	2,915
Removal of shadow adjustments	—		—		—		—		13		13
Net premiums in excess of gross premiums	14		1		—		—		—		15
Remeasurement at market value discount rates	372		245		—		—		—		617
Balance, post-adoption at January 1, 2021	$	1,287	$	609	$	761	$	567	$	336	$	3,560

The table below shows the ASU 2018-12 adoption impacts to the life reinsurance recoverable asset as of January 1, 2021, pre-tax:


(Dollars in millions)	Term		Whole life		Deferred annuity		Universal life		Other		Total
At January 1, 2021
Balance, pre-adoption at December 31, 2020	$	113	$	26	$	—	$	—	$	78	$	217
Remeasurement at market value discount rates	29		18		—		—		—		47
Other adjustments	20		1		—		2		—		23
Balance, post-adoption at January 1, 2021	$	162	$	45	$	—	$	2	$	78	$	287