Comment deadline is 31 October 2003.
ED 5 sets out the Board's proposals in Phase I of a two-part project. ED 5 provides guidance on applying existing IFRS to accounting insurance contracts and requires additional disclosures.
The Board intends this Standard to be effective in time for the changeover to IFRS in Europe in 2005. Phase II is a comprehensive project that is taking a complete fresh look at insurance accounting.
We have prepared an Special Global Edition of our IAS Plus Newsletter (PDF 46k) summarising the proposals in the exposure draft.
Here are a few of the key proposals:
| Some of the key proposals in ED 5 Insurance Contracts |
- In recognising and measuring insurance liabilities, catastrophe and equalisation provisions would be prohibited.
- An insurer must carry out a loss recognition test relating to losses already incurred at each balance sheet date and, if necessary, adjust its insurance liabilities through net profit or loss.
- In applying IAS 39, an insurer would not be required to separate, and measure at fair value, a policyholder's option to surrender an insurance contract for a fixed amount. But that exception would not apply if the surrender value varies based on the change in an equity or commodity price or index.
- If an insurance contract contains both an insurance component and a deposit (investment) component, the deposit component must be treated as a financial liability or financial asset under IAS 39. As a result, the insurer would not recognise premium receipts for the deposit component as revenue.
- The fair value of a demand feature (such as a demand deposit) can be no less than the amount payable on demand. Cash surrender and maturity values of many traditional insurance contracts would not generally be classified as a deposit component.
- Insurance liabilities cannot be offset against related reinsurance assets.
- Income and expense from reinsurance contracts cannot be netted against related expense or income from the underlying insurance contracts.
- ED 5 would not require discounting or specify a discount rate.
- ED 5 would not prohibit or require deferral of policy acquisition costs.
- ED 5 would not require all insurance subsidiaries of a single parent to use same accounting policies.
- An insurer cannot change the measurement basis for its insurance liabilities simply by the purchase of reinsurance.
- Many new disclosures are proposed, including fair values of insurance assets and insurance liabilities (starting from 1 January 2006).
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Click for IASB Press Release (PDF 33k).
