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Insurance Contracts

IASB Meeting Summaries and Observer Notes


 IASB/FASB October 2011


 

 

The IASB and FASB continued their discussions on insurance contracts, considering: fixed fee service contracts, eligibility criteria for premium allocation approach and presentation in the statement of financial position and comprehensive income. The staff also provided an oral report on recent investor outreach activities.

Fixed fee service contracts

The boards tentatively decided to exclude from the scope of the insurance contracts standard fixed-fee service contracts that provide service as their primary purpose and that they meet all the following criteria:

  1. The contracts are not priced on the basis of an assessment of the risk associated with an individual customer,
  2. the contracts compensate customers by providing a service, rather than cash payment; and
  3. the type of risk transferred by the contracts are primarily related to the use (or frequency) of services relative to the overall risk transferred.

All IASB and FASB members agreed with this decision.

Eligibility criteria for the premium allocation approach

The boards discussed when insurers should apply the premium allocation approach. No decisions were made.

Presentation of the statement of financial position

The boards tentatively decided that:

  1. An insurer should disaggregate the following components, either in the statement of financial position (balance sheet) or in the notes, in a way that reconciles to the amounts included in the statement of financial position:
    • expected future cash flows;
    • risk adjustment (for the IASB);
    • residual margin (for the IASB);
    • the single margin, where relevant (for the FASB); and
    • the effect of discounting.
  2. Nine IASB and six FASB members agreed with this decision, subject to future consideration of whether the cash flows relating to the recovery of acquisition costs should be separately disaggregated.
  3. For those contracts measured using the premium allocation approach, the liability for remaining coverage should be presented separately from the liability for incurred claims in the statement of financial position.
    All IASB and FASB members agreed with this decision.
  4. For contracts measured using the building block approach, any unconditional right to any premiums or other consideration should be presented in the statement of financial position as a receivable separately from the insurance contract asset or liability and should be accounted for in accordance with existing guidance for receivables. The remaining insurance contracts rights and obligations should be presented on a net basis in the statement of financial position.
    All IASB and FASB members agreed with these decisions.
  5. For contracts measured using the premium allocation approach, all insurance contract rights and obligations should be presented on a gross basis in the statement of financial position.
    All IASB and FASB members agreed with this decision.
  6. Liabilities (or assets) for insurance contracts should be presented separately for contracts measured using the building block approach and those measured using the premium allocation approach.
    Ten IASB and six FASB members agreed with this decision.
  7. Portfolios that are in an asset position should not be aggregated with portfolios that are in a liability position in the statement of financial position.
  8. Thirteen IASB and all FASB members agreed with this decision.


Presentation of the statement of comprehensive income

The boards tentatively decided that an insurer should present premiums, claims, benefits, and the gross underwriting margin in the statement of comprehensive income. The boards will consider at a future meeting whether these items should be presented in the statement of comprehensive income separately for contracts measured using the building block approach and the premium allocation approach.

All IASB and FASB members agreed with this decision.

Next steps

Both boards will continue their discussions on insurance contracts in November 2011.

Date: 10/20/2011


Agenda Papers