Insurance facts and figures 2007 - PwC

Financial reporting
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• Reinsurance assets would need to include a discount to allow for the probability
of losses from default or disputes.
• The IASB is undecided as to whether an insurer should present premiums as revenue
or as deposit receipts.
• The IASB is undecided as to whether it should address any accounting mismatches
between the fair value through profit or loss value of assets backing unit-linked
contract liabilities and the liabilities which are measured using a current exit value
basis (the current exit value basis is the estimated valued for which the risk and
obligations of the portfolio would be transferred to another entity).
• The impacts above will present some disclosure challenges to insurers.
The discussion paper will be the subject of a presentation by the IASB and an education
session by the FSAA during June 2007. Given that Australian insurers have been fair
value accounting for insurance assets and liabilities for a while, players in the industry
are well placed to make submissions to the IASB should they desire.
Phase II: Convergence
The IASB has stated that an important priority of the insurance project is convergence
with US standards, wherever possible and when feasible under the IASB conceptual
framework, and consistency with other IASB projects (such as the Revenue Project).
The US standard setter, the Financial Accounting Standards Board (FASB) has
expressed an interest in participating in a “modified joint project” in respect of
insurance. This would mean that, following analysis of the comments received on the
phase II discussion paper, the IASB and the FASB would undertake a joint project with
the objective of issuing identical or substantially similar standards.
THE FAIR VALUE OPTION AND ASSETS BACKING INSURANCE LIABILITIES
The initial AASB 139 Financial Instruments: Recognition and Measurement (issued
July 2004) included a free choice option to designate any reliably measurable financial
asset at fair value through profit or loss.
The July 2004 versions of AASB 1023 and AASB 1038 compelled insurers to take this
option for financial assets they had determined as backing their insurance liabilities.
However, in response to feedback from, amongst others, the European Central Bank
and the European Commission, the IASB, and consequently the AASB, introduced
restrictions on the ability to designate financial assets as fair value through profit or loss.
Amendments made in June 2005 (and effective for accounting periods beginning on
or after 1 January 2006) now only permit designation when doing so results in more
relevant information because either:
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