The June 2015, Issue 46 of KPMG ISG’s IFRS Newsletter: Insurance – Moving Towards International Insurance Accounting highlights the IASB’s recent discussions about its insurance contracts project:
Variable Fee Approach. The Board (1) decided that the contractual service margin (CSM) would be unlocked for changes in the estimate of the variable fee for service (that fee includes the entity’s expected returns on underlying items) that the entity expects to earn from direct participating contracts, (2) decided on the criteria for an insurance contract to qualify as a direct participating contract, and (3) discussed the unintended consequences of applying the variable fee approach if an entity uses derivatives to hedge financial market risks.
Release of the CSM for participating contracts. The Board decided that an entity would recognize the CSM in profit or loss based on the passage of time.
Applying IFRS 9, Financial Instruments, in conjunction with IFRS 4, Insurance Contracts. The Board reviewed information that focused on implementing IFRS 9 before the forthcoming insurance contract standard is effective and discussed (1) how to mitigate temporary accounting mismatches and other sources of volatility in profit and loss through amendments to IFRS 4 and (2) the costs and complexities associated with deferring the effective date of IFRS 9 for insurance businesses. This discussion was educational and the Board did not reach decisions.