Large SEC-filing life insurers have now reported 12 quarters under ASU 2018-12, enough to judge whether the standard delivered the transparency it promised for long-duration contracts.

It did, and the transparency is expensive to read. Market risk benefit remeasurement now routinely opens a gap between GAAP net income and adjusted operating earnings large enough that every major life insurer reports on two bases.

Key Takeaways

  • Lincoln Financial's FY2025 net income of $1,086 million sat against adjusted operating income of $1,537 million, a $451 million gap the company attributes primarily to the non-economic impact of changes in market risk benefits.
  • Prudential swung $470 million in four quarters, from $146 million of pre-tax MRB losses in Q3 2024 to $324 million of gains in Q3 2025, on equity levels, rate curves and implied volatility it does not control.
  • The retrospective net premium ratio recalculation runs from contract inception, so a single percentage point on a mortality or lapse assumption can move reserves on a decades-old block by hundreds of millions.
  • Lincoln's first annual review under LDTI produced $2.1 billion unfavorable, or $12.47 per diluted share; the following year's produced $144 million, or $0.84.
  • The mandated A-rated discount rate carries no illiquidity premium, which the American Academy of Actuaries says systematically produces a loss at inception on economically profitable payout annuities.

Two Sets of Books, Both Required

The standard's central reporting effect is that the figure GAAP produces and the figure management runs the business on have separated, permanently.

Market risk benefits, the ASU 2018-12 category for contract features protecting policyholders from capital market risk, are measured at fair value using risk-neutral stochastic scenarios, with changes flowing through net income each quarter except for the insurer's own credit risk, which routes through OCI.

Lincoln Financial is the clearest case. For full-year 2025 it reported net income of $1,086 million, $5.83 per share, against adjusted operating income of $1,537 million, $8.23 per share, with the $451 million difference "primarily attributable to the non-economic impact of changes in market risk benefits." In Q4 2025 alone, MRB remeasurement drove a $311 million positive difference between the two.

Prudential shows the reversal pattern. Pre-tax MRB losses of $146 million in Q3 2024 moderated to $77 million in Q4, then became $324 million of gains in Q3 2025, a $470 million swing across four quarters driven by equity market levels, interest rate curves and equity index implied volatility.

MetLife shows the scale on a larger balance sheet: full-year 2023 GAAP net income of $1.4 billion against $5.1 billion in 2022, while adjusted earnings held near $5.5 billion, and by full-year 2025 net income of $3.2 billion, $4.71 per share, against adjusted EPS excluding notable items of $8.89.

The consequence is a permanent reconciliation deliverable. Investor presentations from MetLife, Lincoln, Prudential and Jackson Financial carry reconciliation tables that run to two pages or more, and producing and explaining them each quarter is now core financial reporting actuarial work.

The Unlocking That Does Not Settle Down

The second volatility source is the annual assumption review, and the expectation that it would calm after a round or two has not held.

Before LDTI, cash flow assumptions for the liability for future policy benefits were locked at inception and revisited only on a premium deficiency or loss recognition event. LDTI requires mortality, morbidity, lapse and expense assumptions to be updated to current best estimate at least annually, retrospectively. Most insurers run the review in the third quarter, which has made Q3 a structural earnings-surprise quarter that Q1, Q2 and Q4 are not.

The retrospective method is what makes it large. When an assumption changes, the net premium ratio is recalculated from contract inception on the revised assumption and the resulting change to the LFPB runs through current-period income. On a block of traditional life or long-term care written decades ago, one percentage point on mortality or lapse moves reserves by hundreds of millions. Lincoln's first review, in Q3 2022, produced $2.1 billion unfavorable, $12.47 per diluted share; the Q3 2023 review produced $144 million, $0.84 per share.

Three reviews in, the volatility has not dampened, for two reasons that will not resolve. The underlying experience keeps moving, on post-pandemic mortality, long-term care utilization and annuity policyholder behavior. And the retrospective calculation compounds even small assumption changes across the full history of each cohort, so income statement effect is disproportionate to the size of the change. Net premium ratio capping at 100% adds path dependence on top: a cohort profitable at inception can transition to a capped state after adverse updates, and the accounting differs by when capping occurs.

Product mix is responding to this. Total U.S. retail annuity sales reached $461.3 billion in 2025, up 6%, with nine consecutive quarters above $100 billion. Registered index-linked annuities grew 20% to $79.6 billion and fixed indexed annuities reached $128.2 billion, together 45% of the market, and RILAs share downside with policyholders through buffers and floors rather than full guarantees, so the MRB volatility profile is narrower even though the index credit brings its own embedded derivative treatment. Fixed-rate deferred sales of $160.6 billion generate no MRB liability at all. Rates drive that last number more than accounting does, and accounting simplicity is now part of the strategic allocation conversation.

A Discount Rate That Books a Loss on Profitable Business

The complication is a measurement choice that makes economically sound business look unprofitable on day one.

LDTI mandates an upper-medium-grade, A-rated fixed income yield, standardized across insurers. Payout annuity liabilities are extremely illiquid, and the A-rated yield carries no illiquidity premium reflecting that. The American Academy of Actuaries' Life GAAP Reporting Committee told FASB in its May 2025 agenda request that the requirement systematically produces a loss at inception for economically profitable payout annuity business, and recommended an exception permitting a BBB-rated or blended BBB/A rate where substantially all benefit payments are contingent on survival.

That is accounting reaching into pricing. A carrier writing new payout annuities either accepts a day-one GAAP loss or designs the product to avoid the trigger, and neither choice is about the economics of the contract. The Academy raised two further items in the same request: DAC amortization on a constant-level basis producing patterns inconsistent with flexible premium deferred annuities, and reinsurance gains on recoverables from NPR capping being disallowed even where they mirror a loss on the ceded business.

IFRS 17 already accommodates the discount rate point through its principles-based framework, requiring rates that reflect the characteristics of the liability including illiquidity. For groups reporting under both, that is one item in a longer list: IFRS 17 groups contracts by profitability and LDTI does not, so the same block segments differently and profit emerges differently; DAC sits inside the contractual service margin under IFRS 17 and amortizes on a constant level under LDTI. Baseline profit emergence is broadly similar on simple products, and the signatures from experience or assumption changes are not.

The workload arrives on teams already carrying the implementation. KPMG benchmarking puts average LDTI implementation cost at $26.4 million for the 2023 SEC-filer cohort and $27 million for 2025 non-public adopters, with 40% replacing databases, 36% replacing actuarial valuation systems and 50% of the 2025 cohort making significant or extensive use of external consultants against 28% of the 2023 group. IFRS 18 takes effect January 1, 2027 with mandatory 2026 comparatives, so that preparation runs alongside quarterly LDTI production. FASB has not yet responded to the Academy's requests.

Further Reading on actuary.info

Sources

  1. FASB, “ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts,” August 2018 - fasb.org
  2. American Academy of Actuaries, Life GAAP Reporting Committee Agenda Request to FASB on LDTI, May 2025 - actuary.org
  3. American Academy of Actuaries, “Application of ASU 2018-12 to the Accounting for Long-Duration Contracts under U.S. GAAP” (Practice Note), December 2023 - actuary.org
  4. KPMG, “Benchmarking LDTI Implementation,” December 2024 - kpmg.com
  5. Lincoln Financial Group, “Fourth Quarter and Full Year 2025 Results,” February 2026 - businesswire.com
  6. MetLife, “Full Year and 4Q 2025 Results,” February 2026 - metlife.com
  7. Prudential Financial, “Full Year and Fourth Quarter 2025 Results,” February 2026 - prudential.com
  8. LIMRA, “U.S. Annuity Sales Hit Record $461 Billion,” 2026 - insurancebusinessmag.com
  9. LIMRA, “Quarterly U.S. Retail Annuity Sales Top $120 Billion For the First Time,” Q3 2025 - limra.com
  10. Deloitte, “2026 Global Insurance Outlook,” 2026 - deloitte.com
  11. Cherry Bekaert, “How LDTI Affects Insurance Accounting Standards,” August 2025 - cbh.com
  12. RSM, “Global Insurance Accounting Practices Converge, but Differences Remain,” 2024 - rsmus.com
  13. SOA Financial Reporting Section, “Bridging the GAAP: IFRS 17 and LDTI Differences Explored,” July 2022 - soa.org
  14. Oracle, “LDTI vs. IFRS 17 Comparison Guide” (White Paper) - oracle.com
  15. Milliman, “IFRS 17 vs. US GAAP LDTI: Different Animals?,” December 2019 - milliman.com
  16. RNA Analytics, “Tracking Progress with LDTI,” December 2025 - rnaanalytics.com
  17. SOA, “The New Face of LDTI Under US GAAP,” October 2025 - soa.org
  18. WNS, “Beyond Compliance: Leveraging LDTI and IFRS 17 for Strategic Advantage,” 2025 - wns.com