Insurance contracts

Date recorded:

Accretion of interest for the residual margin

The IASB held a decision making session on this subject after having received an educational session on the same topic the previous day. The staff recommended confirming the proposal in the exposure draft that interest should be accreted on the residual margin. For the accretion, the staff recommended to use the discount rate of the liability determined at initial recognition of the contract (i.e. the locked-in rate). The staff recognises that it is more complex to accrete interest than not however, it believes it will be beneficial to do so.

The discussion on the subject of whether to accrete or not expanded to consider whether to use a locked-in or current interest rate with some IASB members noting that using a locked-in rate would make the process of accretion easier. The IASB approved the staff’s recommendations with a majority of ten, for both the accretion and the use of a locked-in rate. Although the FASB is still discussing the issue of accretion, it appears inclined not to accrete, which would create further divergence between the two Boards’ decisions.


The staff then presented the “package of disclosures” already discussed the previous day. It was clear from the discussion that the IASB prefers to address disclosures in the current insurance discussions rather than delay these to a future date. There was some debate around the particular disclosure of the amount of equity that the insurer holds to comply with regulatory requirements and little support was received from the Board on this. No vote was taken on the package of disclosures.

Decision on the form of the IASB due process

This subject was awaited for with anticipation: whether to publish a revised draft or re-expose a draft IFRS.

After the staff presented the argument for and against re-exposing the draft IFRS, the Vice-Chairman Ian Mackintosh observed that, given the insurance project has been running for 15 years, the IASB needs to issue the standard as soon as possible. He stated that if the re-exposure route is chosen many issues would be challenged again and the project may risk failing altogether. In his view, a review draft with extensive outreach should be enough due process. Many of the other IASB members had a different view and saw a need for a limited re-exposure with questions focused on the items which have significantly changed since the first exposure draft.

On voting for this matter the IASB decided to re-expose the insurance contracts proposals with questions limited to five subjects:

  1. participating contracts accounting under the “mirroring approach”,
  2. presentation of premiums in the statement of comprehensive income,
  3. unlocking the residual margin against changes in estimates of future cash flows,
  4. the use of Other Comprehensive Income (OCI) for discounting, and
  5. the transition requirements.

The Chairman, Hans Hoogervorst, supported a limited re-exposure to ensure that the process does not re-open issues which already have been decided and sufficiently deliberated. He asked for the exposure draft to make clear that comments on issues other than the above are not sought in this hopefully final round of consultations.

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