The IASB and FASB continued their discussion on insurance contracts by considering how risk should be reflected in the measurement of an insurance contract liability.
The IASB tentatively decided that the measurement of an insurance contract should contain an explicit adjustment for risk. The adjustment would be determined independently from the premium and would be re-measured in each reporting period. Eleven of the IASB members present supported this decision. Two voted against.
The FASB tentatively decided that:
- An insurance contract measurement model should use a single margin approach that recognises profit as the insurer satisfies its performance obligation to stand ready to compensate the policyholder in the event of an occurrence of a specified uncertain future event that adversely affects that policyholder.
- An insurer satisfies its performance obligation as it is released from exposure to risk as evidenced by a reduction in the variability of cash outflows.
- An insurer should not remeasure or recalibrate the single margin to recapture previously recognised margin.
- They would consider the inclusion of an onerous contract test as part of the model.
The majority of FASB members supported these decisions.
The IASB and FASB will continue to explore whether the two approaches could be made comparable through disclosures.
The boards will continue their discussion on this project at their joint meeting on 31 May-1 June 2011.