The use of OCI

The Board considered whether it should permit or require insurers to use other comprehensive income (OCI) for the remeasurement of insurance liabilities if financial assets held to back those liabilities are not carried at fair value through profit or loss. Respondents to the Discussion Paper (DP) Preliminary Views on Insurance Contracts argued that some or all changes should be permitted to be recognised in OCI to avoid accounting mismatches, as the assets backing the liabilities are not at fair value through profit or loss and/or to distinguish short-term market volatility that might reverse over the long term of the insurance contract.

The Board agreed with the staff's proposal not to change the accounting for assets or permit the use of OCI for insurance liabilities as this would create an exemption from other standards that would normally apply to the accounting for assets.

The Board then deliberated whether it should permit the use of OCI to report some changes in insurance liabilities. The Board considered that permitting or requiring the use of OCI is likely to require complex, and to some extent onerous, procedures to determine which part of the insurance liability is backed by assets not measured at fair value, to track 'cost' information for that part of the liability, and to determine whether amounts should be recycled from OCI to profit or loss. The Board noted that any accounting mismatches could be avoided by selecting the fair value option in IFRS 9 and by a large majority agreed not to permit the use of OCI or change the accounting for insurance assets.

The Board continued to deliberate whether the use of OCI would be useful to distinguish short-term market volatility from the entity's long-term performance. Some respondents to the DP argued that IAS 19 on pensions and other post-employment benefits permit the use of OCI for those liabilities and that similar accounting should apply to insurance liabilities. The Board noted that it is not always possible to keep consistency with existing standards when developing new standards and that since it is the Board's intent to review the accounting for retirement benefits, analogy to existing pension accounting is not appropriate.

Shadow accounting

On the question of whether shadow accounting should be permitted, the Board noted that in the proposed Insurance Standard gains and losses on assets do not affect the measurement of non-participating insurance contracts. In relation to IFRS 9's OCI presentation alternative, there is no recycling of realised gains or losses. Shadow accounting would result in complex presentation that would not be easy for users to understand. The Board agreed with the staff recommendation that shadow accounting should not be retained.