Insurance contracts (IASB only)

Date recorded:

The January 31st paper for the IASB (Paper 2C) considered sweep issues that were raised by respondents to the ED or are unintended consequences identified as a result of the IASB’s tentative decisions. The Staff proposed to discuss the following issues with the IASB on an exceptions basis only and we have noted in the table below the vote that was expressed by the IASB members on each of the topic areas presented in the paper:


Topic AreaStaff RecommendationPaper 2C paragraphIASB Vote

Policyholder accounting

Do not address policyholder accounting (except for cedants) in this project.



Grandfathering of the definition of an insurance contract

Do not create explicit guidance.




Do not create explicit guidance.



Recognition point for deferred annuity contracts

Revise the recognition point to clarify that the recognition point for deferred annuities is the earlier of the start of the coverage period or the date on which the first premium becomes due. In the absence of a contractual due date, the premium is deemed to be due when received.



Income taxes included in fulfilment cash flows

Clarify that cash flows relating to tax payments should be evaluated and treated like any other cash flows.



Discounting of deferred taxes

Do not address discounting of deferred taxes in this project.



Tacit renewals

Do not create explicit guidance.



Cash bonus

Do not create explicit guidance.



Reinsurance contracts held by cedant— unfavourable changes that adjust the positive residual margin

Do not impose a limit on unfavourable adjustments against the positive residual margin.



Treatment of ceding commission in cedant’s financial statement

Confirm the ED proposal that an insurer should treat ceding commissions as a reduction of premiums ceded to reinsurer.



Alignment of the allocation pattern for the premium in the premium allocation approach with the residual margin in the building block approach

Align the requirements to reduce the liability for remaining coverage to the requirements for releasing the residual margin in the building block approach.



Disclosure of maturity analysis for contracts accounted for using the premium allocation approach

The insurer shall be relieved from providing disclosure about maturity analysis of cash flows for the liability for remaining coverage for contracts accounted for using the premium allocation approach.



Acquiring a portfolio as part of a business combination or portfolio transfer

Confirm ED proposal that different requirements should apply to business combinations and portfolio transfers.



Allocation period of residual margin in a business combination or portfolio transfer

Do not create explicit guidance.



Transition — business combination

On transition to the new standard, an insurer shall assume that all in force contracts had been originated by the entity.


No vote

Implementation guidance in IFRS 4

Do not carry forward the implementation guidance that currently accompanies IFRS 4 to the new standard.



The IASB was happy to agree most of the sweep issues as recommended by the Staff. The sweep issues 13-15 dealing with the restatement of the past business combinations at transition date attracted a significant amount of debate.

The Staff have suggested two alternatives: alternative 1 would require accounting for those contracts applying the business combination guidance in the revised IFRS 4 at the date of the business combinations. To apply this alternative the insurer would need to:

  • determine the fair value of insurance contracts at the business combination date and book a difference between fair value and fulfilment cash flows at that date as a residual margin or goodwill; and
  • establish the locked-in discount rate at that date.

Under the second alternative, which came with the Staff recommendation to the IASB, the insurer could account for all in-force contracts the same way, irrespective of the form of origination of the contract, based on the general transition requirements, i.e.:

  • establish the margin through modified retrospective application (with simplifications) as for other contracts; and
  • establish the locked-in discount rate at inception.

The IASB members were not convinced with the approach that the Staff recommended and raised a number of issues around the consistency of the Staff recommendation with business combination accounting and the new accounting standard for insurance contracts. The debate was ultimately not conclusive and these issues will be brought back at a future session.

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