Insurance Contracts

Date recorded:


The Boards discussed an overall approach to disclosure for insurance contracts. The staff had proposed the following general principle:

An entity shall disclose information that:

  1. explains the characteristics of its insurance contracts;
  2. identifies and explains the amounts in its financial statements arising from insurance contracts; and
  3. helps users of its financial statements to evaluate the nature and extent of risks arising from insurance contracts.
As elsewhere in IFRSs, specific disclosures would be required to meet this overall principle. The staff did present possible disclosures - building on those required in IFRS 4 - but with a couple of exceptions these were not discussed in depth. In addition, the staff had prepared a comparison of current US GAAP disclosure requirements and IFRS 4.

The Boards encouraged the staff to work with the revenue recognition team to develop consistent disclosure principles that would rephrase objective (c) to concentrate on helping users 'to evaluate the amount, timing and uncertainty of cash flows': this was seen as less ambiguous than the current phrasing. Coordinating with the revenue recognition team was necessary as they face the same challenge, and the Board wished to avoid covering the same territory twice. Disaggregation was also an issue that was not addressed in the disclosure principle. Some Board members saw disaggregation as vital to insurance contract disclosure given the amount of netting that accompanies the recognition and measurement of insurance contracts.

Other Board members were concerned that, without a clear understanding of the presentation of insurance contracts in the financial statements, deciding what else needs to be disclosed was challenging. However, any disclosure must help the user to identify how the insurer makes money, what types of contracts it writes, in what jurisdiction it writes them, how much discretion management has in measurement, where the risks are in the business, and how those risks are reflected in measurement, among other things. Another issue raised was that of operational risk - where the entity operates, the regulatory environment, and any restrictions place by operation of law or prudential supervisors on the types of business an insurer was permitted to underwrite. In general, Board members agreed that the disclosure principle and accompanying proposed disclosures were a good start, but needed more specificity before they could be commented on with any degree of comfort.

An IASB member suggested that the disclosures required in Australia, Canada, and New Zealand (that is, those jurisdictions that require a model similar to that being proposed by the forthcoming ED) should be studied and incorporated as appropriate in the ED's disclosure package.

The Boards agreed in principle on the approach to disclosure (no formal vote was taken).

The Boards reviewed briefly possible disclosures. No formal views were expressed, but several Board members thought that it was premature to consider specific disclosures before the accounting requirements had been concluded.

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