The Financial Reporting Council (FRC) has flagged up continuing concerns over some of the requirements laid out in the IASB exposure draft Insurance Contracts, saying they introduce significant changes in accounting and are likely to raise implementation and systems issues for insurers.

In its letter of response to IASB's revised ED, the FRC acknowledges that the new proposals 'go a long way' to addressing concerns raised when the new standard was first considered some years ago.

However, the FRC says it believes the requirement to recognise and present insurance liabilities in the other comprehensive income (OC) will create extensive accounting mismatches and will 'likely lead to asset liability measurement mismatch being hardcoded into accounting for insurance contracts'. As a result, financial statements will become more complex and more difficult for users to understand.

In addition, the FRC says that proposals for a mirroring approach for measuring assets and liabilities where the contract specifies a link to returns on those underlying items, whilst theoretically sound, is likely to prove complicated to apply and understand in practice.

The regulator also challenges the requirement in the ED to accrete interest on the contractual service margin at locked-in rates, which it says has little merit given that all other elements of the cash flows from the insurance liabilities will be discounted using current rates. The FRC warns that to meet this requirement would call for substantial investment in resources and new systems, and points out that the introduction of the new standard will require entirely new models and IT systems.

For these reasons, the FRC is calling on IASB to ensure a draft review of the new standard is available for a reasonable period of time so that implementation issues can be ironed out before the standard is finalised.