Insurance Contracts

Date recorded:

The staff indicated that it is too early to develop a detailed plan at the moment. Much depends on the advice that emerges from discussions within the Insurance Working Group and on the interaction with other projects. The staff will update this plan as the project progresses and make it more detailed.

The Board discussed the interaction of this project with the other projects that are currently underway: conceptual framework, revenue recognition, accounting measurement, performance reporting, financial instruments, and the liability and equity project. The staff indicated that the level of interaction makes it difficult to develop a detailed timetable at this stage.

The remit of the Financial Instruments Working Group was discussed in the context of how its work affects this project. The Board agreed that there would be consultation on an ad hoc basis rather than formulating a policy framework.

The Board noted that the interaction of the insurance project with the revenue recognition project would be challenging.

On the issue of convergence, the staff indicated that the FASB is not expected to commit resources to the insurance contracts project at this time. The Board indicated its intention to continue with the project.

The Board was asked whether any 'initial output' document should be issued for comment - something along the lines of a brief discussion paper, dealing only with certain 'hot spots' and indicating the Board's preliminary views. The Board agreed with this approach and advised the staff not to dwell on matters of detail. The following topics would be the main areas of focus in that paper:


  • Model. Should the Board create a single model for all contracts, or different models for different types of contracts? Should the accounting model be based on direct measurements of contract assets and liabilities (asset-and-liability model), on deferral and matching of contract revenues and expenses (deferral-and-matching model), or some combination of the two?
  • Measurement. Should an asset-and-liability model use measurements based on fair value, entity-specific value, or some combination of measurement attributes? If the measurement attribute is fair value, should it be a business-to-customer measurement (customer consideration) or a business-to-business measurement (legal layoff). Should the measurement address options or guarantees embedded in a contract?
  • Discounting. Should the measurement of some or all amounts recognised in the balance sheet be based on their present values?
  • Asset/liability interaction. Should the measurement model incorporate expectations about asset performance in determining the carrying amount of the contract liability?
  • Risk/service adjustment. How should the accounting model approach the question of risk (or service) adjustment?
  • Gain or loss on initial measurement/liability recognition. Should the accounting model be constructed in a manner that prohibits or significantly limits the recognition of net profit or loss on initial recognition?
  • Policyholder behaviour. Should the accounting model incorporate expectations about cash inflows and outflows that are a consequence of policyholder renewals or cancellations of an insurance contract?
  • Acquisition costs. Should costs incurred to acquire new insurance contracts be capitalised as assets and amortised?
  • Unbundling. Should the measurement model unbundle the individual elements of an insurance contract and measure them individually?
  • Participating contracts. How should the insurer's liability to holders of participating contracts be recognised and measured?
  • Credit standing. Should the measurement include the effects of the entity's credit standing?


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