Alternative presentation models (paper 3A - education session)

The joint meeting on insurance this week started with an education session on presentation models. The Staff walked the Boards through a number of examples of statements of comprehensive income all aimed at reconciling the summarised margin approach proposed in the Exposure Draft with the key comment received from the comment letters that users of financial statements need a prominent volume information.

The Boards invited the Staff to continue their work and to validate the various alternative models with the representatives of the insurance stakeholder groups at the Insurance Working Group meeting on 24 March.

Alternative earning profiles for the composite margin (paper 3J - education session)

A second Staff-led education session focussed on the accounting approach for the composite margin release to profit. The Boards were reminded of the negative feedback received in the comment letters on the Exposure Draft proposals to use a formula driven approach to the release to profit of this liability and the Staff illustrated alternative methods including those that would require a risk based release. This approach could be analogous to the risk adjustment/residual margin approach favoured by the majority of IASB members in the Exposure Draft.

Practical expedient for the discount rate (paper 3G)

The Boards resumed their discussion on discount rate for non-participating contracts to consider whether a proxy rate (for example an interest rate of a high quality corporate bond) could be used under certain circumstances as a practical expedient to achieve the objectives tentatively agreed last month.

The majority of both Boards agreed with the Staff recommendation that such an expedient should not be introduced in the final IFRS because it would not allow the achievement of the stated objectives of a discount rate that reflects the characteristics of the insurance contract cash flows.

However the FASB members reserved their right to reconsider their decision when the scope of the new US accounting standard will be debated because the expedient may be useful if the scope requires a large number of non-financial institutions to be under the scope of the new standard for insurance contracts.