Chapters 1, 2, and 3 of the DSOP, prepared by the Insurance Steering Committee, were presented to Board. Chapters 4, 5, 6, should be available to the public for the December Board meeting. Field visits with insurance companies are already taking place, particularly in the UK. Other visits are scheduled in Europe by the end of the year and in Asia at the beginning of 2002.

Links between the insurance project and the projects on performance reporting and financial instruments, and liabilities recognition were pointed out.

The Board discussed the principles stated in chapters 1 and 2:

• Principle 1.1 A future IFRS on Insurance Contracts (the Standard) should prescribe the accounting and disclosure in general purpose financial statements by insurers and policyholders for all insurance contracts, other than those excluded by principle 1.5. The Standard should not address other aspects of accounting by insurers or policyholders (except as specified in principles 4.9, 7.4, 10.1, 10.2 and 11.2 ).
• Principle 1.2 Insurance contracts should be defined as follows in all IFRS and IAS:
  • An insurance contract is a contract under which one party (the insurer) accepts an insurance risk by agreeing with another party (the policyholder) to compensate the policyholder or other beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder or other beneficiary (other than an event that is only a change in one or more of a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index or similar variable).
• Principle 1.3 A contract creates sufficient insurance risk to qualify as an insurance contract if, and only if, there is a reasonable possibility that an event affecting the policyholder or other beneficiary will cause a significant change in the present value of the insurer's net cash flows arising from that contract. In considering whether there is a reasonable possibility of such significant change, it is necessary to consider both the probability of the event and the magnitude of its effect.
• Principle 1.4 A contract that qualifies as an insurance contract at inception or later remains an insurance contract until all rights and obligations are extinguished or expire. If a contract did not qualify as an insurance contract at inception, it should be subsequently reclassified as an insurance contract if, and only if, a significant change in the present value of the insurer's net cash flows becomes a reasonable possibility (see principle 1.3).
• Principle 1.5 Although the following items arise under contracts that may meet the definition of insurance contracts, they should be excluded from the scope of the Standard:
  • (a) financial guarantees (including credit insurance) measured at fair value;
  • (b) product warranties issued directly by a manufacturer, dealer or retailer;
  • (c) employers' assets and liabilities under employee benefit plans (including equity compensation plans);
  • (d) retirement benefit obligations reported by defined benefit retirement benefit plans;
  • (e) contingent consideration payable or receivable in a business combination; and
  • (f) contractual rights or contractual obligations that are contingent on the future use of, or right to use, a non-financial item (for example, certain licence fees, royalties, lease payments and similar items).
• Principle 1.6 An insurer or policyholder should not account separately for the components of an insurance contract that bundles together:
  • (a) an insurance element and a non-derivative investment element; or
  • (b) an embedded derivative and a host insurance contract.
• Principle 2.1 There should be a single recognition and measurement approach for all forms of insurance contracts, regardless of the type of risk underwritten.
• Principle 2.2 Insurance assets and insurance liabilities are assets and liabilities arising under an insurance contract. An insurer or policyholder should recognise:
  • (a) an insurance asset when, and only when, it has contractual rights under an insurance contract that result in an asset; and
  • (b) an insurance liability when, and only when, it has contractual obligations under an insurance contract that result in a liability.
• Principle 2.3 An insurer or policyholder should derecognise an insurance asset or insurance liability or a component of an insurance asset or insurance liability when, and only when, it no longer has the contractual rights or the contractual obligations that resulted in that insurance asset, insurance liability or component.

The Board started to consider chapter 3 and to examine the concepts of 'entity specific value' and 'fair value'. Analysis will continue at the December Board meeting.