In June 2013, the IASB published a revised exposure draft (ED) on the accounting for insurance contracts. The comprehensive proposals will fundamentally change the accounting by insurers and other entities that issue insurance contracts.
The IASB has attempted to address the concerns of constituents regarding the perceived ‘artificial’ volatility caused by the proposals in the previous ED, but these changes add complexity. The proposed standard will replace IFRS 4, which currently permits a wide variety of accounting practices for insurance contracts.
This practical guide summarises the key proposals and their implications. The questions in the IASB ED target five key areas that have significantly changed since the previous ED as set out below:
It is important for insurers and other entities issuing insurance contracts to assess how all the requirements in the measurement model fit together. It will be critical for insurers to work closely with stakeholders to make sure that they understand the impact of the significant changes being proposed.
This could be the last opportunity for the industry to influence the debate before the expected effective date of 2018. Insurers need to act now in assessing the implications of the new proposals on both their contracts and business practices and to assess the additional demands of the proposals on resources, data and modelling systems.