Insurance contracts — Phase I


When the IASB took over from the IASC in April 2001, it inherited a comprehensive project on accounting for insurance contracts that the IASC started in April 1997. The IASC had published an issues paper in November 1999.

The IASB continued the work that the IASC had begun but realised that it was not feasible to complete the comprehensive project in time for the adoption of IFRS by European listed companies in 2005. Nonetheless the IASB recognised that some guidance is needed before 2005 because accounting for insurance contracts under IFRS at the moment is diverse and quite unique relative to other industries. Also, the existing IFRS that are most relevant to accounting for insurance contracts (IAS 32, 37, 38, and 39) exclude insurance contracts from their scopes.

At its May 2002 meeting, the IASB agreed to split the insurance contracts project into two phases, so that some components of the project can be put in place by 2005 without delaying the rest of the project:

  • The first phase addressed the application of existing IFRSs to entities that issue insurance contracts
  • Phase II is a comprehensive project on accounting for insurance contracts addressing, on a fresh-start basis, all issues unique to insurers.

Background and scope of Phase I project

The first phase addresses the application of existing IFRSs to entities that issue insurance contracts. The Board discussed whether each of the following issues should be identified as matters to be addressed in the first phase:

  1. Agree on a definition of insurance contracts. The existing definitions in IAS 32 and IAS 39 are not consistent with those in IAS 37 and IAS 38, and also are not consistent with certain aspects of the definition of insurance contracts used in US GAAP.
  2. Presentation and disclosure, including consideration of how insurers might give the disclosures about measurement assumptions proposed by the Improvements Project to be added to IAS 1.
  3. Implementation guidance for applying IAS 39 to those contracts issued by insurers (as well as other financial institutions) that do not qualify for the insurance contracts scope exclusion of IAS 39 -- particularly guidance with respect to embedded derivatives such as renewal options and participation features.
  4. Provide guidance on identifying and measuring derivatives that are embedded in insurance contracts, including guidance on which such derivatives are 'closely related' to their host insurance contract.
  5. Elimination of a limited number of existing practices that are incompatible with the IASB Framework, for example, the elimination of catastrophe and equalisation provisions that do not represent liabilities as defined in the Framework.
  6. A review of the implications to insurance entities of the hierarchy of pronouncements that an entity is required to consider in the absence of an IFRS. The IASB has proposed to add that hierarchy as part of its improvements to IAS 8.
  7. Derecognition -- guidance on applying the proposed 'no continuing involvement' derecognition approach to insurance contracts.
  8. Guidance on accounting by policy holders.


Current status of the project

This project has been completed. IFRS 4 Insurance Contracts was issued on 31 March 2004.


Project milestones

31 July 2003 ED 5 Insurance Contracts published Comment deadline 31 October 2003
31 March 2004 IFRS 4 Insurance Contracts issued Effective for annual periods beginning on or after 1 January 2005

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