The HUB Global Insurance Group, Chicago, has asked International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to withdraw staff papers on accounting for short-duration insurance contracts and to discuss the group’s issues in a formal and open dialogue.
The HUB Group expressed concerns in its letters that the staff papers would preclude the application of what it said is the predominant business model applied globally for short-duration insurance contracts. This would be the so-called Undiscounted Continuous Re-underwriting Business Model (Undiscounted CRR-BM), one of two basic, but different, business models for short-duration insurance contracts.
The other, the Discounted Continuous Risk Re-underwriting Model (Discounted CRR-BM), typically with a risk margin, is also is used in some parts of the world and The HUB noted that support for discounting referenced by staff is partially attributable to jurisdictions anticipating changes to solvency requirements –not any basis in existing global practices.
The HUB Group consists of major international insurance companies and national and regional trade associations from Asia, Europe and North and South America formed to support the work of the Boards in the development of a single, global accounting standard for insurance contracts.
“With nearly one trillion of annual earned premiums on a global basis, we believe the accounting for short-duration insurance contracts warrants a more substantive discussion between the Boards and constituents and a satisfactory resolution of outstanding issues before any final decisions on measurement and reporting, or significant components thereof, are rendered,” said the HUB Group in the Dec. 9 letter.
The insurance coalition observed that support for discounting referenced by staff is in part attributable to jurisdictions anticipating changes to solvency requirements and not based on existing global practices, which is predominately an application of the Undiscounted CRR-BM.
Any “decision to eliminate the Undiscounted CRR-BM as an accounting alternative for short-duration insurance contracts at the present time would be premature, inconsistent with the needs and desires of many investors, and not based on the type of formal, open, substantive discussion between the Boards and its constituents that should be required before any significant change to global accounting standards is implemented,” said The Hub, as represented by Doug Barnert of Barnert Associates, Inc., in New York.
“The coalition also expressed concerns about the limited field testing undertaken related to short-duration insurance contracts.
FASB said it does not comment on comment letters but added that the HUB Insurance Group letter will be considered by the Boards as part of their due process, while IASB offered no comment.