The roundtable discussions focussed on four out of the seven questions re-exposed by the revised ED, namely:

• the presentation of changes in the discount rates of insurance liability in OCI (the ‘OCI solution’);
• the ‘mirroring approach’ proposed for participating contracts;
• the role of the risk adjustment in the unlocking of the contractual service margin (CSM); and
• the revised revenue presentation proposals. 

Several arguments were raised to suggest that mandatory application of the ‘OCI solution’ would result in accounting mismatches for many UK preparers and that a non-mandatory application would be better. A few different views were discussed around the conditions necessary to justify reflecting the changes in insurance liability discount rates through profit or loss. 

In discussing participating contracts it was noted that choosing not to reflect the changes in discount rates in OCI by itself would not address the accounting mismatches between measurement of insurance contracts and underlying items. Concerns were raised over the ED requirement to treat differently, for measurement purposes, the cash flows relating to options and guarantees embedded in the participating contracts.  Additionally arguments were put forward to include in the recalibration of the CSM the return on the underlying items attributable to the equity holders but not yet declared for distribution.  This was suggested in order to better reflect the economic nature of participating contracts and the insurer’s obligation to provide a participation in the long term return to both current and future policyholders.  

In discussing the role of the risk adjustment in the recalibration of the CSM, there was no clear consensus on whether the period’s changes in the risk adjustment should be reflected in the CSM.  Some queried the role of the risk adjustment compared to the role of the CSM and whether the two should be released on the same basis or whether different patterns of release are justified. 

Finally the discussion around the revenue presentation resulted in some alternative suggestions to the one proposed in the ED, including going back to the summarised margin approach in profit or loss with further disclosure presented in the notes. 

The roundtable event was held to generate discussion in advance of the 25 October 2013 deadline for submission of comments to the IASB on the proposals in the ED.

Click for (all links to FRC website):

• Full summary of the roundtable discussion.
• Slide pack from the roundtable.