The IASB and FASB continued their discussions on insurance contracts by considering the accounting for explicit account balances within insurance contracts. In addition, the boards received an oral update on the feedback received at the IASB's Insurance Working Group held on 24 October 2011.
Disaggregation of explicit account balances
The FASB tentatively decided to separate explicit account balances from the insurance contract liability. Explicit account balances are account balances within a contract that meet both of the following criteria:
- The balance is an accumulation of the monetary amount of transactions between the policyholder and an insurer.
- The balance is credited with an explicit return. A return is explicit if it is determined by applying either of the following to the balance:
- A contractual formula in which the insurer may have the ability to reset the return rate during the life of the contract.
- An allocation determined directly by the performance of specified assets.
All FASB members supported this decision.
IASB members indicated their preference to measure explicit account balances as part of the insurance contract and to disaggregate them for presentation or disclosure. IASB members indicated that they would like to explore an approach in which some other deposit components of insurance contracts could be disaggregated in the same way. Although some indicative votes were taken, the IASB made no decisions.
The boards plan to consider at a future meeting:
- whether there are additional account balances that should be separated from the insurance contract liability.
- how income and expense items related to the explicit account balances should be recognised in the statement of comprehensive income.
- whether to measure separated account balances:
- using requirements other than those being developed in the insurance contracts project or
- as part of the insurance contract and to disaggregate those account balances for presentation or disclosure.
Both boards will continue their joint discussions on insurance contracts in the week commencing 12 December 2011. The FASB plans to hold an education session on participating contracts on 22 November 2011 with the board meeting to follow on 30 November 2011.
Insurance contracts: education session on residual margins
The IASB continued its discussions on insurance contracts by holding an education session to consider issues related to the residual margin. The IASB discussed whether the residual margin established at contract inception should be adjusted (unlocked) to offset changes in estimates and which changes in estimates should adjust the residual margin in this way.
Because this was an education session, the IASB was not asked to make any decisions.