The Board had a preliminary discussion on future insurance contract premium payments (and other cash flows resulting from those premiums, e.g. benefits and claims). In particular, the Board considered whether insurance contract recurring payments - that is, those premiums that will occur as long as the policyholder does not cancel the existing contract-should be included in the measurement of the insurance contract liability. Should the answer to that question be 'yes', the Board would need to address how the 'boundary' for an existing contract should be determined.
The Board addressed the second part of the issue (the boundary). The staff analysis noted that there was no disagreement that future contracts do not enter into the current contract liability measurement (although they may be relevant in determining a customer relationship intangible asset). Thus, the discussion centred on existing contracts, which the staff had divided into two segments:
- contracts that compel the insurer to accept future premiums
- contracts that guarantee continuing insurability if the policyholder continues to pay premiums (a sub-set of these contracts); and
- other contracts that have neither of these characteristics (that is, the policyholder cannot compel the insurer to accept future premiums).
The Board was divided: some supported drawing the boundary to include some element of the 'other contracts'. Other Board members were clearly worried that if the boundary was extended to include 'other contracts', that would represent a major, untested leap in accounting measurement and would be quite different from the measurement of intangible assets in IAS 38. One Board member likened the 'other contracts' to nothing more than a time series of written options and was very uncomfortable with recognising these as assets, given the consequences for other areas of IFRS. Other Board members were sympathetic to this view.
Board members also noted that several of the issues in this topic were very similar to issues surrounding renewals in the Board's projects on revenue recognition and leases. They wanted a consistent answer for all. In addition, the accounting for customer behaviour had to be consistent with that for acquisition costs. No decisions were made and the staff will return at a later date.