The Financial Accounting Standards Board has issued a proposed accounting standards update for improving the financial reporting for long-term insurance, contracts, including life insurance, disability income, long-term care and annuities.

The exposure draft for the new standard includes proposals for improving the timeliness of recognizing changes in the liability for future policy benefits by requiring updated assumptions be used to measure the liability.

The new standard would also eliminate the use of an asset rate to discount liability cash flows. Instead it would require cash flows to be discounted at a high-quality fixed-income instrument yield.

In addition the proposal would simplify the accounting for certain options or guarantees in variable products by requiring those benefits to be measured at fair value instead of using two different measurement models.

The proposed accounting standards update would also simplify the amortization of deferred acquisition costs, while aiming to improve the disclosure effectiveness.

“During outreach on our project to consider potential improvements to the insurance accounting model, stakeholders identified specific area of financial reporting related to long-duration contracts that could be improved,” said FASB chairman Russel G. Golden in a statement. “Based on that feedback, the board developed the proposed ASU, which sets forth recommended, targeted improvements to enhance the quality of information provided to investors about these contracts.”