Project UpdatesInsurance Contracts—Joint Project of the IASB and FASBLast Updated: May 27, 2009 (Updated sections are indicated with an asterisk *)This project update summarizes the project activities and decisions of the IASB and FASB (the Boards). It was prepared by the staff and is for the information and convenience of the Boards’ constituents. All decisions of the Boards are tentative, may change at future Board meetings, and do not change current accounting and reporting requirements. Decisions of the Boards become final only after extensive due process. Agenda Decision Announced At the Board meeting on October 29, 2008, the FASB Chairman announced that the Board has decided to join in the IASB’s insurance contracts project. The objective of this joint IASB/FASB insurance contracts project is to develop a common, high-quality standard that will address recognition, measurement, presentation, and disclosure requirements for insurance contacts. Specifically, this project is intended to:
On August 2, 2007, the FASB issued an Invitation to Comment, An FASB Proposal: Accounting for Insurance Contracts by Insurers and Policyholders. That Invitation to Comment included a Discussion Paper issued in May 2007 by the IASB, Preliminary Views on Insurance Contracts, setting forth its preliminary views on the main components of an accounting model for an issuer’s rights and obligations (assets and liabilities) under an insurance contract. The FASB issued the Invitation to Comment to gather information from its constituents to help decide whether there was a need for a comprehensive project on accounting for insurance contracts and whether the FASB should undertake such a project jointly with the IASB. The comment period for both documents ended November 16, 2007. Use the links below to view the individual comment letters received by the FASB In response to its Invitation to Comment or a summary of those comment letters. Insurance Contracts Comment Letters Summary of Insurance Contracts Comment Letters *DECISIONS REACHED AT LAST MEETING (May 18, 2009) The Board continued deliberations of its joint project on accounting for insurance contracts. The discussion focused on the risk margins an entity would use to measure an insurance liability and how an entity would account for the costs it incurs to acquire insurance contracts (such as sales commissions and underwriting costs). The Board discussed several aspects of the accounting for risk margins: (1) the need for a risk margin in the measurement of an insurance liability, (2) measurement of the risk margin, and (3) remeasurement of the risk margin. The Board did not reach any decisions on these issues. The Board decided that an entity should expense all acquisition costs when incurred. It also decided that an entity should not recognize any revenue (or income) to offset those costs incurred. *SUMMARY OF DECISIONS REACHED TO DATE (as of April 2, 2009) Cash Flows (April 2, 2009) The Board agreed that a measurement of the fulfillment value of an insurance contract should use expected cash flows rather than a best estimate of cash flows. The Board also agreed that those expected cash flows should be updated each period. The Board discussed whether market inputs should be part of the measurement of cash flows when a fulfillment value notion is used. The Board agreed that the measurement of cash flows should consider all available information that represents the fulfillment of the insurance contract. All available information includes, but is not limited to, industry data, historical data of an entity’s costs, and market inputs when those inputs are relevant to the fulfillment of the contract. Measurement (February 25, 2009) The Board agreed to explore an approach where an insurance contract is measured at a current fulfillment value rather than fair value as defined in FASB Statement No. 157, Fair Value Measurements (an exit value). The fulfillment value is currently not a defined measurement approach but would be based on entity-specific inputs that generally would not require consideration of market participant views. The Board discussed the potential components of a fulfillment value but did not come to any conclusions. The Board agreed that in principle the initial recognition of an insurance contract should not result in the recognition of an accounting profit. However, some Board members acknowledged that future deliberations and decisions (such as the accounting for acquisition costs) may necessitate revisiting whether an accounting profit should be recognized at inception of an insurance contract. The Board will continue its discussions of insurance contract accounting issues in the second quarter of 2009. *BOARD/OTHER PUBLIC MEETING DATES The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final Statement, Interpretation, FASB Staff Position, or Statement 133 Implementation Issue.
The IASB’s Discussion Paper presents its preliminary views on the main components of an accounting model for all contracts that meet its definition of an insurance contract. The principal focus of the preliminary views is the measurement of insurance liabilities. For additional and current information concerning the IASB’s insurance contracts project use the link below. The comment letters received by the IASB on its Discussion Paper also are available via the link below. IASB Insurance Contracts Project Update Jeffrey Cropsey Hans van der Veen |