Welcome to the website of the IFRS Foundation and the IASB

Saturday 01 November 2014

Banner graphic

IASB Meeting Summaries and Observer Notes


 IASB March 2014


 

(IASB education session)

On 13 March 2014, the IASB resumed deliberations on the 2013 Exposure Draft (ED) Insurance Contracts. The IASB held an education session on its proposals to recognise the effects of changes in the discount rate in other comprehensive income, which was one of the targeted topics in the ED.

No decisions were made.


(IASB decision-making session)


The IASB met on 18 March 2014 to discuss two out of five targeted proposals in the 2013 Exposure Draft Insurance Contracts (2013 ED). The decisions regarding these proposals apply only to nonparticipating contracts.


Unlocking the contractual service margin


The IASB tentatively decided:

    a. to confirm the proposals in the 2013 ED that after inception: 

                i. differences between the current and previous estimates of the present value of cash flows related to future coverage and other future services should be added to, or deducted from, the contractual service margin, subject to the condition that the contractual service margin should not be negative; and
                ii. differences between the current and previous estimates of the present value of cash flows that do not relate to future coverage and other future services should be recognised immediately in profit or loss.

    b. that favourable changes in estimates that arise after losses were previously recognised in profit or loss should be recognised in profit or loss to the extent that they reverse losses that relate to coverage and other services in the future.

    c. that differences between the current and previous estimates of the risk adjustment that relate to future coverage and other services should be added to, or deducted from, the contractual service margin, subject to the condition that the contractual service margin should not be negative. Consequently, changes in the risk adjustment that relate to the coverage and other services provided in the current and past periods should be recognised immediately in profit or loss.

All IASB members agreed with these decisions.


Recognising the effects of changes in the discount rate in other comprehensive income


The IASB tentatively decided:

    a. that an entity should choose to present the effect of changes in discount rates in profit and loss or in other comprehensive income as its accounting policy and should apply that accounting policy to all contracts within a portfolio, subject to developing: 
            i. guidance that entities should apply the same accounting policy to groups of similar portfolios, and
            ii. guidance that would provide rigour about when entities could change accounting policies based on the requirements for changing accounting policy in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.


Thirteen IASB members agreed with this decision and three disagreed.


    b. If the entity chooses to present the effect of changes in discount rates in other comprehensive income, that an entity should recognise: 
            i. in profit or loss, the interest expense determined using the discount rates that applied at the date that the contract was initially recognised; and
            ii. in other comprehensive income, the difference between the carrying amount of the insurance contract measured using the discount rates that applied at the reporting date and the carrying amount of the insurance contract measured using the discount rates that applied at the date the contract was initially recognised.


Thirteen IASB members agreed with this decision and three disagreed.


    c. that an entity should disclose the following information: 
            i. For all portfolios of insurance contracts: an analysis of total interest expense included in total comprehensive income disaggregated at a minimum into: 
                            1. the amount of interest accretion determined using current discount rates;
                            2. the effect on the measurement of the insurance contract of changes in discount rates in the period; and
                            3. the difference between the present value of changes in expected cash flows that adjust the contractual service margin in a reporting period when measured using discount rates that applied on initial recognition of insurance contracts, and the present value of changes in expected cash flows that adjust the contractual service margin when measured at current rates.

            ii. In addition, for portfolios of insurance contracts for which the effect of changes in discount rates are presented in other comprehensive income: an analysis of total interest expense included in total comprehensive income disaggregated at a minimum into: 
                            1. interest accretion at the discount rate that applied at initial recognition of insurance contracts reported in profit or loss for the period; and
                            2. the movement in other comprehensive income for the period.


Fifteen IASB members agreed with this decision and one disagreed.

Next steps


At the April meeting, the staff intend to ask the IASB to consider the main issues relating to insurance contracts revenue, and to consider the approach to other issues raised in the response to the 2013 ED related to matters on which the IASB did not specifically ask for input. Issues specific to participating contracts will be considered at a later stage, and, at that stage, the staff will consider whether the tentative decisions reached for non-participating contracts need to be revisited.

 

Date: 3/13/2014