This was a public education session and therefore no decisions were made.

The session was led by representatives of:

• The International Credit Insurance & Surety Association (ICISA); and
• The Association of Financial Guaranty Insurers (AFGI)

The background to this session was that the Board issued an Exposure Draft in July 2004 proposing amendment to IAS 39 and IFRS 4. The comment deadline was 8 October. ICISA and AFGI both submitted comment letters.

ICISA and AFGI addressed the Board and explained the following areas:

• (a) What their credit insurance / financial guaranty business is and how it operates.
• (b) Similarities and differences between credit insurance, financial guaranty business and products offered by banks.
• (c) Current accounting practice for these contracts and implication of applying IFRS 4.
• (d) Practical implications of applying the proposals in the ED if the Board confirms them.

ICISA addressed the Board first and highlighted the main differences between credit insurance and products offered by banks. The main points highlighted included:

• Banks give guarantees over known specified debtors whereas credit insurance covers wide portfolios of unspecified debtors;
• Credit insurance policies include maximum liability clauses, e.g. of a 9billion portfolio, the maximum liability of the credit insurers may be capped at 335million, whereas banks provide guarantees for the full amount.

The differences were discussed. A Board member suggested that the first was merely an 'operational' difference in the two products that would not necessarily result in different accounting treatments, whereas the second was a difference in contractual arrangements rather than a difference per se between banks and insurers. However, the Board reached no conclusion, as the purpose of this session was purely educational.

The AFGI then highlighted the impact of the proposed accounting treatment in the ED. AFGI recommended that financial guarantees should be included within the scope of IFRS 4 pending the outcome of phase II of the Insurance Project. The three key issues of concern to the AFGI going forward are:

• The treatment of deferred acquisition costs (and the potential for differences to US GAAP).
• The need for symmetry in treatment of financial guarantee contracts and contracts that are reinsurance of financial guarantee contracts.
• The treatment of salvage provisions within financial guarantee contracts.

The staff expects to ask the Board to discuss the comment letters in January.