The boards of the IASB and FASB gathered in London this week to further their discussions on the Insurance Contracts project.
Among the items up for debate were the time value of money in the premium allocation approach and the presentation of changes in the liability for participating contracts.
All IASB and FASB members agreed that the discount rate at inception of the contract should be used to measure the liability for remaining coverage, when it is accreted or discounted.
The boards also discussed how the decision to present in Other Comprehensive Income (OCI) changes in the insurance liability arising from changes in discount rates could apply to the presentation of the liability for incurred claims for contracts, to which the premium allocation approach is applied.
A tentative decision was reached by the boards that when the liability for incurred claims is discounted, an insurer should use the rate at the inception of the contract to determine the amount of the claims and interest expense in profit or loss. That rate should then be subsequently locked in.
Six FASB members agreed with the decision, while 11 members of the IASB preferred using the rate on the date the claim is incurred. Some 13 IASB members backed using the rate at the inception of the contract for the sake of convergence.
The boards also considered previous tentative decisions applying to contracts with participating features for which the mirroring approach would apply. They noted that mirroring decisions would take precedence over tentative decisions that insurers should present in OCI changes in the insurance contract liability arising from the effect of changes in the discount rate.
As a result, contracts with participating features where the mirroring decision applies, insurers would present changes in the insurance contract liability in the statement of comprehensive income consistently with the presentation of changes in the directly linked underlying items. No decisions were reached on this item.
The FASB tentatively decided that, for contracts to which the mirroring decisions do not apply - and where the contractual obligation to the policyholder is directly linked to the fair value of the underlying items, changes in the insurance liability should be shown in profit or loss.
All FASB members agreed.
The IASB and FASB are set continue their deliberations on the Insurance Contracts project today (17 October) and presentation in the statement of comprehensive income.
The IASB will also continue its IASB-only discussions on the Insurance Contracts project on 19 October, when it will consider transition requirements and financial instruments with discretionary participation features.