Insurance Contracts – Phase I

Date recorded:

The staff noted that credit insurance would be discussed at the April Board meeting.


In previous meetings the Board has agreed that:

  • A reinsurance contract is simply an insurance contract issued by one insurer (the reinsurer) to indemnify another insurer (the cedant) against losses on one or more insurance contracts issued by the cedant.
  • Offsetting reinsurance assets against the related direct insurance liabilities should be prohibited.
  • An insurer should not change the measurement basis for its insurance liabilities when it buys reinsurance. An example of a change in measurement basis is a change from an undiscounted basis to a discounted basis.
  • The scope of IAS 36, Impairment of Assets, does not, and should not, exclude a cedant's rights under a reinsurance contract. Furthermore, the proposed disclosures discussed include disclosures about credit risk.
  • An insurer should unbundle deposit-like components from insurance contracts if the cash flows from the insurance component do not affect the cash flows from deposit-like component.

The staff proposed that reinsurance contracts should initially be measured at their their cost, which is the premium. They further proposed that no gain or loss should arise on inception as a result of removing or restating the insurance liability, which may be recorded on a different basis.

The Board agreed, in general, with this proposal but stated that the ED should also address the subsequent accounting for these items. There was some agreement that this should be a subsequent-event-driven approach, taking the time value of money into account. In addition, if the reinsurance premium is higher than the amount at which the liability is recorded, the liability should be reassessed. If it is determined that the liability is correctly measured, the reinsurance asset is probably impaired.


The Board agreed to include an example in the ED to illustrate the requirements of unbundling deposit-like components of insurance contracts.

Investment Contracts

The Board noted that these are financial instruments and would be dealt with under IAS 39. They tentatively agreed, however, that some guidance should be included on aspects of accounting for these contracts in an appendix to the Phase I ED.

The Board agreed to include wording in IAS 39 to provide guidance on the effects of cancellation and renewal options on effective interest rates. This would build on guidance already included in IAS 39.

The Board agreed that sufficient guidance on index-linked contracts is already included in IAS 39.

The Board agreed to expand the existing guidance in IAS 39 to include changes in liability values as a result of changes in estimates of surrender periods of investment contracts.

The Board agreed that the staff should draft, for the Board's review, guidance that might be added to IAS 18 on accounting for explicit and implicit front-end fees and fees for investment management services. Any guidance on implicit fees included in an item that is carried at fair value would be added to the IAS 39 section dealing with servicing rights.

Decision Summary

The Board discussed and noted a detailed summary of the decisions taken to date.

The Board discussed a proposal that the exemption from applying the proposed hierarchy in paragraphs 5 and 6 of IAS 8 in the Improvements ED should have a limited life after which it would automatically lapse. The Board agreed not to include this in the Phase I ED and Standard but, rather, to state in the introduction to the ED and Standard that it is the Board's intention that this exemption would have a limited life.

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