About the project
What are we doing?
The Insurance Contracts project aims at providing a single source of principle-based guidance to account for all types of insurance contracts.
Current IFRS 4 is an interim standard that allows insurers to continue using various existing accounting practices that have developed in a piecemeal fashion over many years.
In July 2010 the Board issued the exposure draft (ED) Insurance Contracts with a four-month comment period, ending on 30 November 2010. The proposals in the ED would eliminate inconsistencies and weaknesses in existing practices, by replacing IFRS 4 Insurance Contracts.
This project is not part of the Memorandum of Understanding with the FASB (MoU). However the Board intends to debate many of the issues jointly with the FASB.
How are we doing it?
The Board has undertaken a number of initiatives to involve and consult representatives of the insurance industry, the investor community and others, such as actuaries, auditors and insurance supervisors across all major geographical regions, in order to encourage extensive consultation at different stages of the Insurance Contracts project.
In 2004, the IASB established a working group to help it to analyse accounting issues relating to insurance contracts. The group brings together a wide range of interests and includes senior financial executives who are involved in financial reporting.
Further input was provided in the autumn of 2009 by sixteen insurance companies that took part in the targeted field test that was designed to assess whether the proposals under Phase II of the project can be applied rigorously and consistently in practice and to provide an understanding of how the proposed approach will change current practice. A second round of field testing was done during the ED comment period with fifteen insurance companies.
Round-table discussions on the ED proposals were held in Tokyo, London and Norwalk in December 2010. The purpose of these meetings was to listen to the views of, and obtain information from, interested parties about the proposed requirements.
Representatives from the accounting and actuarial profession were invited to hold education sessions during public Board meetings on specific aspects of the proposed measurement model for insurance contracts.
In order to be able to reach out to a larger number of recipients worldwide, we have created a number of webcasts and podcasts, email alerts and investor resources to engage with and inform interested parties.
What are the proposals in the ED?
The ED proposes a comprehensive measurement approach for all types of insurance contracts issued by entities (and reinsurance contracts held by entities), with a modified approach for some short-duration contracts. The approach is based on the principle that insurance contracts create a bundle of rights and obligations that work together to generate a package of cash inflows (premiums) and outflows (benefits and claims). An insurer would apply to that package of cash flows a measurement approach that uses the following building blocks:
(a) a current estimate of the future cash flows;
(b) a discount rate that adjusts those cash flows for the time value of money;
(c) an explicit risk adjustment; and
(d) a residual margin.
For most short-duration contracts, a modified version of the measurement approach would apply:
(a) During the coverage period, the insurer would measure the contract using an allocation of the premium received, on a basis largely similar to much existing practice.
(b) The insurer would use the building block approach to measure claims liabilities for insured events that have already occurred.
Click here for more information about the ED and comment letters.
The Board discuss the responses to the ED and related issues from December 2010. Staff update periodically a table that reflects the effect of Board redeliberations on the ED proposals. For this table and other related information, please use the links on the right side of the project page.
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