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IASB Discussion Paper on insurance contracts

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03 May 2007

The IASB has published a Discussion Paper (DP) Preliminary Views on Insurance Contracts.

Comments are requested by 16 November 2007. Thereafter, IASB will develop firm proposals for an exposure draft to be published towards the end of 2008. Allowing for a further period of public consultation, the IASB expects the new standard to be in place in 2010. IASB subscribers may download the DP now (one document for main text, a second for appendices). The DP will be available on the IASB's public website from 14 May. Printed copies will be mailed to IASB comprehensive subscribers or may be Purchased from the IASB. Click for Press Release (PDF 69k). Here is the link to our Agenda Project Page.

Discussion Paper: Preliminary Views on Insurance Contracts

The DP proposes that an insurer should measure its insurance liabilities using the following three building blocks:

  • explicit, unbiased, market-consistent, probability-weighted and current estimates of the contractual cash flows.
  • current market discount rates that adjust the estimated future cash flows for the time value of money.
  • an explicit and unbiased estimate of the margin that market participants require for bearing risk (a risk margin) and for providing other services, if any (a service margin).

 These principles would apply to all types of insurance contracts.

The DP suggests that an informative and concise name for a measurement that uses the three building blocks is 'current exit value'. The DP defines current exit value as the amount the insurer would expect to pay at the reporting date to transfer its remaining contractual rights and obligations immediately to another entity. A measurement at current exit value is not intended to imply that an insurer can, will or should transfer its insurance liabilities to a third party. Indeed, in most cases, insurers cannot transfer the liabilities to a third party and would not wish to do so. Rather, the purpose of specifying this measurement objective is to provide useful information that will help users make economic decisions. In addition, 'current exit price' is not meant to imply that the insurer does not intend to settle its obligations with the policyholder. Ultimate settlement with the policyholder would clearly be an important consideration in the price that the third party would charge for assuming the liabilities.

The paper addresses several other topics, including policyholder behaviour, participating contracts, and the reporting of changes in insurance liabilities.


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