Recognising the contractual service margin in profit or loss

The Staff recommended that the Board:

1. confirm the principle that an entity should recognise the remaining CSM in profit or loss over the coverage period in a systematic way that best reflected the remaining transfer of the services that were provided under an insurance contracts; and
2. clarify that, for non-participating contracts, the service represented by the CSM was insurance coverage which:
   • was provided on the basis of the passage of time; and
   • reflected the expected number of contracts in force.

The Board discussed whether the incidence of claims should also be a consideration where claims were expected to be spread very unevenly over the duration of the contracts, e.g. for weather related cover. The Staff commented that it would be counter-intuitive to e.g. back-end load the recognition of a life insurance contract to fully reflect the much greater risk of a claim arising toward the end of the contract, and that such a method would make the model more complex. Although there was considerable support for taking expected claims into account, a majority of the Board members supported the Staff’s recommendation on cost benefit grounds.

In response to a question from a Board member the Staff clarified that the value as well as the number of contracts in force should be taken into account.

When called to vote by the Chairman, 13 Board members agreed with the Staff’s recommendations, whereas three disagreed.

Fixed fee service contracts, significant insurance risk and portfolio transfers and business combinations

The Staff recommended that the Board:

1. permit, but does not require, entities to apply IFRS 15 Revenue from Contracts with Customers to the fixed-fee service contracts that meet the criteria to be accounted for as insurance contracts;
2. clarify the guidance that significant insurance risk only occurs where there was a possibility that an issuer incurred a loss on a present value basis; and
3. amend the requirements for the contracts acquired through a portfolio transfer or a business combination to clarify that such contracts should be accounted for as if they had been issued by the entity at the date of the portfolio transfer or the business combination.

Fixed fee service contracts

The Board discussed whether an option was desirable, as some Board members felt that an option did not improve IFRSs. The Staff responded by expressing the view that there would not be much difference in practice between applying either the Insurance contract or IFRS 15 to fixed-fee service contracts, therefore, comparability would not be impaired.

In response to a question asked by a Board member it was agreed that an election would be required at an entity level, rather than a portfolio level.

When called to vote by the Chairman, 15 Board members agreed with the Staff’s recommendations, whereas one disagreed.

Significant insurance risk

The Staff asked the Board to agree to retain the additional guidance introduced in the 2013 ED that significant insurance risk occurred only when there was a possibility that an issuer incurred a loss on a present value basis.

When called to vote by the Chairman, the Board members agreed unanimously with the Staff’s recommendation.

Portfolio transfers and business combinations

The Staff asked the Board to agree to amend the requirements for the contracts acquired through a portfolio transfer or a business combination, to clarify that such contracts should be accounted for as if they had been issued by the entity at the date of the portfolio transfer or the business combination.

In response to a question asked by a Board member the Staff confirmed that the CSM would be recognised in profit or loss in the same way as other insurance contract, but including the claims handling period where the period of cover had expired, and the Staff agreed to develop some further guidance about this.

When called to vote by the Chairman, 15 Board members agreed with the Staff’s recommendation, whereas one disagreed.