Date recorded:

The Board held an initial discussion of the responses to the May 2007 Discussion Paper Preliminary Views on Insurance Contracts based on a high-level overview of those responses prepared by the staff. No decisions were made.

General overview

The staff noted that 158 comment letters have been received and there were a few more expected. There was a high degree of agreement that the building block approach provided a useful framework for analysing issues related to insurance contracts; however, nearly all respondents had concerns with aspects of those building blocks. The staff noted that there was widespread support for the following main aspects of the building blocks:

  • using current estimates of cash flows, rather than locked-in estimates; the effects of changes in estimates would be recognised immediately in profit or loss;
  • consistency with observable market prices for factors such as interest rates and equity prices;
  • using expected value (that is, probability-weighted average) rather than a single outcome, although there were concerns expressed about how this principle would be applied in practice;
  • reflecting the time value of money; and
  • including a risk margin.

However, there were significant concerns expressed about the following:

  • recognition of profit on initial recognition of an insurance contract;
  • what the risk margin represents (is it a surrogate for the entity's cost of capital or is it a profit margin) and the interaction with what the Discussion Paper called the service margin;
  • market consistency of cash flows;
  • whether, given that most insurance liabilities could not be transferred, entity-specific expenses were not more relevant to users;
  • some constituents (mainly in North America and Bermuda) were opposed to discounting non-life insurance items; other jurisdictions supported the treatment;
  • many constituents were concerned about consistency with other IASB standards and on-going projects, especially revenue recognition and [non-financial] liabilities.


Accounting for the whole contract?

The staff highlighted some of the issues related to whether an entity should account separately for the rights and obligations created by an insurance contract; or account for the contract as a whole. The staff noted that the issues to be debated during future meetings were relevant to several other projects, including revenue recognition; the elements and recognition chapters in the Framework; fair value measurement guidance; financial instruments and non-financial liabilities.

There were preliminary discussions of a few issues, but nothing substantive.


Settlement value as a measurement attribute

Some constituents supported the proposed measurement attribute (current exit value) but many others encouraged the Board to explore further a settlement approach (given that many insurers do not expect to transfer their liabilities but, rather, to pay claims in the ordinary course of business). However, there was no consistency of views about what this settlement model might look like.

The staff explored whether settlement value might be a candidate for the measurement attribute for some or all insurance liabilities. It was noted that in many cases 'settlement value' would be similar to 'exit value' but with more entity-specific values for items such as expenses. The staff also asked whether there was a genuine need for a measurement attribute for insurance contracts: they concluded that there should be as it would help to clarify the accounting for insurance contracts. Again, the Board will discuss this topic with a view to making decisions at a subsequent meeting.



The staff presented a project timetable for the development of an exposure draft. Board members did not think they had enough information to determine whether the timetable was reasonable. However, there was consensus that the issue of policyholder accounting for insurance contracts should not delay this project.

Roundtables should be held, but not before the IASB had done more work to develop their thinking and are in a position to be responsive to the issues raised in the comments on the Discussion Paper.

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