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Date recorded:

Presentation and disclosures: Proposed drafting in the new ED (Paper 3A)

With Paper 3A the Staff effectively provided a mark-up document which illustrates how all the tentative decisions taken by the Board to date regarding presentation and disclosures for insurance contracts along with the Staff proposals under this agenda would crystallise in the new ED.

The Appendix introduced at the end of paper 3A effectively illustrated how the presentation and disclosure requirements covered in the mark-up document would be applied in practice. Certain challenging reconciliations required by the new standard such as opening to closing balances for insurance and reinsurance contracts segregated under the liability for: a) remaining coverage, b) changes in estimates and c) incurred claims, were illustrated in the tabular formats of the Appendix with clear cross references to the relevant paragraphs of the new ED beside each figure.

The Board asked the Staff to pay particular attention on when to use the word ‘present’ versus the word ‘disclose’ in the revised ED in order to achieve consistency with the  official IASB language used in the other IFRS standards.

No decisions were taken in respect of this paper.


Presentation of insurance contracts in the Financial Statements (Paper 3B)

Paper 3B covered the Staff’s proposals for the line items presented in the statement of financial position and the statement of comprehensive income.

The Staff recommended that in the statement of financial position an entity should:

  1. present all rights and obligations arising from an insurance contract on a net basis
  2. be required to present separate line items for insurance contracts and for reinsurance contracts.

The Board voted unanimously in favour of the Staff’s recommendations.

One Board member enquired the Staff’s recommendation to the IASB to modify the list of minimum specified line items in paragraph 54 of IAS 1in order to include insurance and reinsurance contracts. The Staff explained that insurance and reinsurance contracts are sufficiently distinct to warrant separate presentation of other assets and liabilities an entity may hold in the statement of financial position. The Board member raised the concern that IAS 1 provides a general purpose framework for financial reporting and as such it would not need to include additional specific requirements to meet its purpose. Adding specified line items in paragraph 54 of IAS 1 could raise similar issues for other types of businesses giving the example of leasing or transportation entities.

The Staff explained that their intention was to make the list of specified line items in paragraph 54 of IAS 1 more comprehensive. The Staff reached out to the other Board members for their opinion on this issue.

Although the Staff’s recommendation did not seek for the Board’s vote in this meeting as it did not impact the content of the new IFRS 4, the Chairman of the Board asked the members to vote for or against the Staff recommendation in order to raise this issue in a relevant future meeting. The Board unanimously voted for the Staff recommendation and agreed to raise the issue of supplementing the items in paragraph 54 of IAS 1 in another meeting with no tentative decisions taken at this point on this separate matter.

The Staff then asked the Board to discuss and decide on its second recommendation of paper 3A regarding the presentation of insurance contracts in the statement of comprehensive income.

IASB’s tentative decision in October 2012 meeting that premiums and claims presented in an insurer’s statement of comprehensive income should be determined by applying an earned premium presentation, would allow insurers to meaningfully combine the information presented in the statement of comprehensive income for contracts accounted for using the building blocks approach (BBA) and those accounted for using the premium allocation approach (PAA). Taking into account the IASB’s preference for aligning the presentation format for insurance contracts with that for other industries led the Staff to consider whether the requirements of IAS 1 that apply to all other industries would also be sufficient to specify the presentation format for insurance contracts.

Under the 2010 ED the line items that would be required to present contracts measured using the PAA include a) premiums revenue, b) claims incurred, c) expenses incurred, d) amortization of acquisition costs, and e) changes in the additional liability for onerous contracts. Compared to these IAS 1 requires that an entity presents a line item only for revenue. It also requires information in addition to the fairly limited line items it prescribes, as follows:

  1. An entity shall present any additional line items, headings and subtotals in the statement(s) of profit or loss and other comprehensive income when such presentation is relevant to an understanding of the entity’s financial performance.
  2. When items of income or expense are material, an entity shall disclose their nature and amount separately in the statement(s) of profit or loss and other comprehensive income or in the notes.

The Staff viewed the above requirements as sufficient to specify the presentation requirements for the statement of comprehensive income for entities with insurance contracts. Applying IAS 1, all entities that issue insurance contracts would be required to provide line items and disclosures about all material items that would be relevant to understand the entity’s financial performance.

With this in mind, the Staff asked the Board to vote on the issue. The IASB agreed unanimously with the Staff proposals and tentatively decided that the general requirements of IAS 1 are sufficient to specify the presentation requirements for the statement of comprehensive income for insurance contracts.


Disclosures related to participating contracts, earned premiums and transition (Paper 3C)

At its September 2012 meeting, the IASB tentatively approved a proposed disclosure package, noting that it would consider at a future date any additional disclosures that might be appropriate in light of later decisions. The IASB subsequently reached decisions on three matters for which additional disclosures might be appropriate: participating contracts, presentation of premiums and claims in the statement of comprehensive income, and transition.


Participating contracts

In the light of these decisions, the Staff considered whether there would be a need for disclosures about participating contracts in addition to the disclosures that the IASB agreed at the September 2012 meeting. Concerns were raised that measuring the insurance contract liability on the same basis as underlying assets may result in reduced comparability between the liabilities of different insurers. This is because the measurement basis of the underlying assets may differ between insurers and, furthermore, there may be more than one permitted option for measuring the underlying item, e.g. investment property, which could be carried at either cost or fair value. To alleviate this concern, the Staff proposed that, when an insurer applies the mirroring approach, the insurer should disclose the carrying amounts in the financial statements that arise from cash flows that vary with the underlying items.

Some of the Board members questioned the need for the additional disclosures proposed and asked for more clarifications on the purpose and content of these new disclosures. The Staff explained that their proposals aim to address the cases where the measurement basis of the underlying item is not fair value (i.e. amortised cost), but the insurer is required to disclose the fair value of those items. The Staff think that, in such cases, it would be useful to inform users of financial statements that the policyholders have an economic interest in the difference between the fair value of the underlying assets and their carrying amount. Without such disclosure, users of the financial statements may have incomplete information because part of the fair value that is disclosed will be passed through to policyholders and will not go to the insurer’s shareholders.

After these clarifications, the Staff asked the Board to vote on its recommendations for participating contracts:

  1. an insurer should disclose the carrying amounts of insurance contract liabilities arising from contracts to which the mirroring approach has been applied, and
  2. if an insurer measures the underlying items in a participating contract on a basis other than fair value, and discloses the fair value of the underlying items, the insurer shall disclose the extent to which the difference between the fair value and carrying value of underlying assets would be passed to policyholders.

The Board agreed unanimously with these recommendations.


Earned premiums

In the light of IASB’s tentative decisions in October 2012 that premiums and claims presented in an insurer’s statement of comprehensive income should be determined by applying an earned premium presentation, the Staff considered:

  1. How to modify the disclosure requirements relating to the reconciliation of contract balances
  2. Whether any additional disclosures are needed.

The Staff explained that IASB’s decision to opt for an earned premium presentation actually meant that the amounts presented in the income statement for contracts accounted for using the BBA and those accounted for using the PAA would be the same. As a result, the same reconciliation requirements would be useful to explain the amounts for contracts that apply either the BBA or the PAA.

The Staff proposed to require insurers to disclose a reconciliation from the opening to the closing balance of the aggregate carrying amount of (re)insurance contracts liabilities (or assets) that shows in tabular format how that balance is affected by cash flows and by income and expenses presented in the income statement. This reconciliation would be presented by disaggregating the movement into its components:

  1. the liability for remaining coverage, excluding any amounts attributable to losses on initial recognition (for the PAA, this will be the unearned premium)
  2. the liability for: a) losses on initial recognition and b) subsequent changes in estimates recognised immediately in profit or loss (for the PAA, this will be the additional liability for onerous contracts)
  3. the liability for incurred claims

Some Board members shared their concerns that the proposed disclosure requirements might become very cumbersome and detailed. Other Board members questioned the applicability and feasibility of the proposed disclosure requirements to different jurisdictions.

The Staff replied that the initial disclosures proposed under the 2010 ED had been welcomed by the various groups and that the main difference between the new proposals and the ones in the 2010 ED was that the Staff extended the same requirements for contracts accounted for under the BBA also to contracts accounted for under the PAA. The majority of the Board members supported the Staff proposals because it would add to the quality of information provided in the financial statements and to the comparability between insurance entities.

In the vote that followed this debate there was finally a unanimous support for the Staff proposals.

The Staff then presented its next proposal to the Board related to the requirement that an insurer disaggregates in a note to the financial statements the insurance contract revenue into the inputs considered for the determination of this revenue in the period, i.e.

  1. the probability-weighted claims, benefits and expenses expected to be incurred in the period;
  2. the allocation of expected acquisition costs
  3. the risk adjustment changes relating to that period’s coverage, and
  4. the residual margin allocated to that period

The Staff acknowledged that such disaggregation would only be feasible for contacts accounted for under the BBA because this information would not be obtainable for contracts accounted for under the PAA.

One Board member expressed his strong disagreement with this proposal because it was too detailed.  Specifically, he doubted that users of the financial statements will benefit, from this information because in his view what interests users is the insurance contract revenue as such and not how it is disaggregated in the components of the technique mandated to determine insurance contact revenue. Another Board member agreed with this view and suggested that these disclosures may be excessive and thus of no benefit to users.  The majority of the Board members however insisted that revenue is the most critical figure users are looking for and supported the Staff proposal.

In the vote followed the Staff proposals were approved with only two Board members voting against.


Disclosures of other activity measures

At the October 2012 meeting many members of IASB and FASB expressed their favour towards the disclosure of more than one measure of an insurer’s activity and both Boards had noted that a measure of insurance contract revenue by itself did not provide all the information that users of financial statements would seek.

With that said and given the Boards’ joint tentative decision to opt for an earned premium presentation for premiums and claims in the statement of comprehensive income, the Staff considered in Paper 3C the need to disclose additional measures of insurers’ activity, such as written premiums or premiums due.


Written Premiums and Premiums Due

Written premium is the amount of all expected premium inflows included in the insurance contracts measurement (i.e. including deposit components) relating to contracts that are initially recognised in the period. The Staff believes that information about contracts written in the period provides useful information about the sales volume of the insurer and therefore, written premium information could supplement the premiums earned presented in the statement of comprehensive income.

Additionally, the Staff believes that, for contracts accounted for using the BBA, the value of information about the premiums written would be enhanced by information about the expected present value of the fulfilment cash flows and risk adjustment related to premiums written in that period. Such information would provide all the information about new business that users of financial statements seek and that would allow those users to compare the results for business written in prior years with the expected result for contracts written in the current year.

Accordingly, the Staff recommended that, for contracts accounted for using the BBA, insurers should disclose the effect of contracts written in the period on the insurance liability, showing separately the effect on:

  1. the expected present value of future cash outflows, showing separately the amount of acquisition costs;
  2. the expected present value of future cash inflows;
  3. the risk adjustment; and
  4. the residual margin.

IASB voted unanimously in favour of the Staff proposal.

Then the Staff explained their position to the Board regarding the requirement to reconcile the premiums earned to the premiums due each period in the disclosure notes. This was a point raised by many constituents reinforced by the fact that the premiums due presentation is currently used in some jurisdictions.

The Staff expressed to the Board their view that premiums due is very similar to the premiums received in a period which is already included in the Staff’s disclosure proposals as part of the reconciliation of contract balances. Premiums due is the amount of the invoiced or receivable premium, which is unconditionally due to the insurer. The Staff concluded there would generally be insignificant differences between that amount and the premium receipts and as a result they felt that there is a little benefit in requiring an additional disclosure of the premiums due.

Some Board members disagreed with the Staff conclusions and requested premiums due to be clearly disclosed in the financial statements as it is a measure of the volume of activity which is highly recognised by investors.

Responding to a direct request from the Chairman the majority (9 out of 15 Board members) of the IASB voted for the matter to be discussed in a future meeting to allow further investor outreach on this topic.



Under the IASB’s tentative decisions insurers would need to restate comparative periods using the guidance in IAS 8. When an insurer first applies the new insurance contracts standard, paragraph 28(f) of IAS 8 would require disclosure of the line item amounts that would have been reported in accordance with the previous accounting policy per the current IFRS 4:

  1. for the current period
  2. for prior periods that are required to be restated.

The Staff noted their reluctance to include this requirement for insurance contracts based on:

  1. the significant  doubt whether such disclosures would provide useful information
  2. the additional cost of providing such disclosures; and
  3. the sufficiency of the existing transition disclosure requirements to enable users to assess the effect of transition.

The Staff recommended that when the new insurance contracts IFRS is initially applied, disclosure of the current period line items amounts that would have been reported in accordance with the previous accounting policies in IFRS 4 should not be required.

The IASB was unanimous in supporting this decision.


Fieldwork Planning

The last topic discussed in this meeting was the fieldwork that should be undertaken as a result of IASB’s decision in the September 2012 meeting to re-expose its proposals for insurance contracts.

In Paper 3E, the Staff firstly provided background on previous fieldwork and the forthcoming re-exposure of the insurance proposals focusing on the five targeted areas highlighted by the Board in September 2012 meeting. Secondly, it described the proposed plan for fieldwork with preparers and users covering the topics of objectives, population and timing.



IASB’s principal objective when it decided to re-expose its proposals was to better understand the operation of the five significant changes from the 2010 ED.

Consequently, the objectives for the fieldwork would be to:

  1. understand how the targeted proposals would be applied in practice;
  2. evaluate the costs and benefits of the targeted proposals; and
  3. assess how the proposed approach will help insurers to communicate with users of their financial statements

Fieldwork participants would be asked to apply the proposed measurement model to a selected portfolio(s) of insurance contracts over two annual periods. Depending on the type of insurance contracts selected, the participants would then provide their results to the applicable questions.



The fifteen entities which agreed to participate in the previous round of the IASB’s fieldwork would be invited to participate in the third round of fieldwork that will be initiated after the IASB’s re-exposure of the draft IFRS. A Board member asked to widen the circle of participants to include also countries and regions that had expressed interest to participate in the last round of fieldwork but did not make it. All Board members agreed with this view while others emphasised the need to focus fieldwork questionnaires at the five target areas IASB is seeking feedback and that this should include testing the disclosures affecting these areas.



The Staff’s plan is to:

  1. develop the fieldwork questionnaires and other materials when IASB finalises the forth-coming re-exposure of the draft IFRS so that the users workshops can take place, and entities can conduct the fieldwork, during the comment letter period; and
  2. present a preliminary analysis of the results at the same time as the comment letter analysis and the views received during the outreach activities

The IASB intends to take the fieldwork’s results into account to assess their proposals before the finalisation of the new insurance contracts IFRS.

No vote was taken on this paper.


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