Insurance Accounting Newsletter — Issue 4, June 2009

Published on: 13 Jun, 2009

This edition is entitled Divergence on new business revenue.

The American Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) held meetings on 18 May and 21 May respectively, to discuss further and decide on the future of insurance accounting.

The FASB also held educational sessions on margins, acquisition costs, policyholders' behaviour and contract boundaries on 6 May and 27 May, although it is now running its decision making discussions behind the IASB.  The 18 May FASB agenda covered Margins for Risk (MfR) and acquisition costs at its meeting on 21 May, the IASB reached an important decision on policyholders' behaviour and contract boundaries.

A notable outcome of the May meetings is the divergence between the two Boards on a key component of the new accounting model.  The FASB tentatively agreed not to recognise new business revenue at the inception of the contract.  This is a different approach to the IASB's; they decided in April to use the premium net of incremental acquisition costs when calibrating the margins of the initial liability.


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