U.S. insurers and industry groups are just starting to decide how to respond to a major insurance contracts accounting paper.
Insurance Working Group members at the International Accounting Standards Board, London, put out the paper earlier this month, to sketch out preliminary IASB views about ways to improve the current IASB insurance accounting standards.
In the United States, the Financial Accounting Standards Board, Norwalk, Conn., is reviewing its own insurance standards, and FASB could end up participating in a joint project with the IASB.
IASB working group members have tried to incorporate a fair value approach to recognizing liabilities in their paper.
What Your Peers Are Reading
The authors of the paper talk about 3 major standards building blocks:
- Explicit, unbiased, market-consistent, probability-weighted and current estimates of contractual cash flows.
- Current market discount rates that adjust the estimated future cash flows for the time value of money.
- An explicit and unbiased estimate of the “risk margin” — the margin that market participants require for bearing risk — and the “service margin” — the margin that market participants require for providing other services.
Creating new standards based on those building blocks should lead to increased consistency with other international financial reporting standards that require use of current estimates of future cash flows in measurement of liabilities, the working group members write.