Currently, Chapter 1 to 6 of the Draft Statement of Principles (DSOP) prepared by the Insurance Steering Committee are available to the public. They may be downloaded from IASB's Website. Chapters 4 to 6 were presented to the Board at the December meeting in Paris.

Also, the Board was given an update of the field visits. At the moment 10 insurance companies have been visited in 5 countries. The main focus of the field visits is to assess practical implementation issues. It was found that companies already using an embedded-value approach are keen to use a prospective method; however companies currently not using an embedded-value approach are not so keen. The key points the insurance companies visited were concerned about were:

• risk adjustment;
• using a stochastic model, as conceptually it is sound but difficult to implement; and
• availability of technical and human resources, particularly for the smaller companies.

It was also mentioned that the International Actuarial Association has established a subcommittee to develop an internal standard/guidance to help actuaries implement the Insurance DSOP.

The Board continued its discussion of Chapter 3 of the DSOP from its November meeting, further examining the concepts of 'entity-specific value' and 'fair value'. It was discussed that in practice 'entity-specific value' and 'fair value' have been adequately defined and will probably produce similar results. The main difference between the two concepts could be the nature of the cash flows. The Board expected however, that in most cases the majority of the cash flows would be the same.

The Board discussed in detail the concept of 'entry value' and 'exit value' as described in Paragraph 3.40. The difference between the two concepts would be due to transaction costs and different markets (referring to primary and secondary markets). It was also discussed whether 'exit value' was in fact consistent with the 'entity-specific value' methodology.

The Board then considered Chapters 4 to 6 of the DSOP, starting with Chapter 4, Estimating the Amount and Timing of Cash Flows.

Principle 4.1 (Expected Present Value of All Future Cash Flows) was discussed, in particular the notion of 'expected present value', which is defined further in paragraph 4.9. It was mentioned that when using a stochastic approach, the number of scenarios to be examined would depend on the circumstances. There is little guidance given in this area as to the number of scenarios, and whether one single best estimate would suffice in certain situations. Companies will have to develop systems in order to perform such simulations.

The Board's discussion revealed an uneasiness concerning the type of cash flows to be included in the calculation of 'expected present value' and the potential for a profit to arise on initial recognition. Several Board members noted that that because of the valuation of 'risk and uncertainty' one would not expect an up-front profit very often.

Principle 4.2 (Renewals) was then discussed. It was clarified that if a cash flow decreases the insurer's liability or creates an asset, it should still be included if the policyholder holds potentially renewable options.

The issues of obligations and rights, and asset recognition and revenue recognition, were discussed and debated extensively. One question raised was whether an entity has rights to future resources if it does not control the inbound cash flows.

The issue of intangible assets was discussed, in particular, whether customer relations should be included in cash flows because of the direct relation to the contract. However the question was asked as to whether there is a market price for this intangible asset.

The Board did not discuss any more Principles beyond this point. It will be decided before the next Board meeting how the discussion on the Insurance DSOP will proceed. The meeting concluded with no formal decisions being made. The principles were discussed so that they may be regarded as basic premises with which to analyse the remainder of the DSOP.