Insurance Contracts

Date recorded:


The Board acknowledged that the timetable for completion of the project on insurance contracts will not enable companies that will have to apply IFRS in 2005 for the first-time to prepare for the change sufficiently in advance. Therefore, in addition to continuing its work on the main project, the Board envisages publishing guidelines (or may be a Standard) that would explain how an insurance company can be compliant with IFRS while no Standard on insurance contracts is available. This guideline would include:

  • A reminder that all existing IFRS are applicable, including IAS 39 on financial instruments. However, the Board acknowledges that some guidance may be needed on how to apply IAS 39 to certain specific features of insurance activities.
  • An indication that, as long as the IASB has not published a Standard on insurance contracts, an enterprise should continue to apply its current accounting policies, as long as they do not conflict with the Framework.
  • If possible, guidance on the treatment of catastrophe provisions and equalization reserves, discounting of liabilities and deferred acquisition costs. However, the Board acknowledge that it might be difficult to come to a consensus on the latter two items as long as the main project is not completed.
  • Requirements for enhanced disclosures of the accounting policies followed by an insurance company, specific risks (particularly insurance risks) and how risk and uncertainty is considered in preparing the financial statements.

The staff also presented to the Board:

  • A paper highlighting the issues associated with the accounting of performance-linked contracts. The Board acknowledged that these issues were complex and that further research was needed;
  • A paper considering the application of 4 models to a basic insurance contract, including the US GAAP treatment, the proposed treatment under the Insurance DSOP, and a model where the level of risk and uncertainty to measure the insurance liability would be set (and adjusted with subsequent events) so that no profit or loss would be recognised on initial recognition of the insurance contract. The Board rejected to continue research on this latter model, since it would prevent, among other things, recognition of losses on initial recognition of a contract which is expected to be at loss at inception by the insurance company. Instead, the Board directed the staff to continue research based on the Insurance DSOP proposals and consideration of a principle that would say that, at inception of a contract and in the absence of the contrary, the premium charged for the contract is the best evidence of its fair value.

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