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📋 '''Long-duration targeted improvements (LDTI)''' is an [[Definition:Accounting standard | accounting standard]] update issued by the [[Definition:Financial Accounting Standards Board (FASB) | Financial Accounting Standards Board (FASB)]] under ASU 2018-12 that fundamentally changes how [[Definition:Insurance carrier | insurance companies]] in the United States measure, recognize, and disclose [[Definition:Long-duration insurance contract | long-duration insurance contracts]] — principally [[Definition:Life insurance | life insurance]], [[Definition:Annuity | annuities]], and [[Definition:Long-term care insurance (LTCI) | long-term care]] products. Effective for public companies beginning in 2023, LDTI replaced decades-old "lock-in" accounting with a framework requiring insurers to update [[Definition:Actuarial assumption | actuarial assumptions]] regularly and reflect changes in their financial statements, bringing greater transparency to the economics of long-tail insurance liabilities.

⚙️ Under the prior regime, insurers set assumptions about [[Definition:Mortality rate | mortality]], [[Definition:Morbidity rate | morbidity]], [[Definition:Lapse rate | lapse rates]], and [[Definition:Discount rate | discount rates]] at contract inception and rarely revised them — a practice known as "locked-in" assumptions. LDTI dismantles this approach in several key ways. For the [[Definition:Liability for future policy benefits | liability for future policy benefits]], insurers must now review and, if necessary, update cash flow assumptions at least annually, with the effect of changes recognized in net income. Discount rates must be updated each reporting period using an upper-medium-grade fixed-income yield curve, with changes in the discount rate flowing through [[Definition:Other comprehensive income (OCI) | other comprehensive income]] rather than the income statement. For contracts accounted for under the [[Definition:Deferred acquisition cost (DAC) | deferred acquisition cost]] model, LDTI simplifies amortization to a constant-level basis over the expected term of the contracts, eliminating the previous method's sensitivity to actual-to-expected experience adjustments. Market risk benefits embedded in [[Definition:Variable annuity | variable annuity]] products are now measured at [[Definition:Fair value | fair value]].

📉 The operational and strategic impact on insurers has been substantial. Implementation required carriers to overhaul their [[Definition:Actuarial modeling | actuarial modeling]] platforms, data infrastructure, and financial reporting processes — a multi-year, multi-million-dollar effort for large [[Definition:Life insurance company | life insurers]]. Beyond systems, LDTI changes the way investors and analysts evaluate insurer performance, since periodic assumption updates introduce new volatility into reported earnings that was previously invisible under lock-in accounting. This has pushed executive teams and [[Definition:Chief financial officer (CFO) | CFOs]] to rethink how they communicate results and manage analyst expectations. For [[Definition:Insurtech | insurtechs]] and technology vendors, LDTI has generated significant demand for modern [[Definition:Cloud computing | cloud-based]] actuarial and finance platforms capable of running the more frequent and granular calculations the standard requires.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Long-duration insurance contract]]
* [[Definition:Deferred acquisition cost (DAC)]]
* [[Definition:Actuarial assumption]]
* [[Definition:Life insurance]]
* [[Definition:Financial Accounting Standards Board (FASB)]]
* [[Definition:Long-term care insurance (LTCI)]]
{{Div col end}}

Definition:Long-duration targeted improvements (LDTI) - Revision history

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