IFRS 4 INSURANCE CONTRACTS IASB Księgarnia

This Set consist of:

International Financial Repoeting Standard 4 Insurance Contracts

Reasons for issuing the IFRS

IN1 This is the first IFRS to deal with insurance contracts. Accounting practices for insurance contracts have been diverse, and have often differed from practices in other sectors. Because many entities will adopt IFRSs in 2005, the International Accounting Standards Board has issued this IFRS:

(a) to make limited improvements to accounting for insurance contracts until the Board completes the second phase of its project on insurance contracts.

(b) to require any entity issuing insurance contracts (an insurer) to disclose information about those contracts.

IN2 This IFRS is a stepping stone to phase II of this project. The Board is committed to completing phase II without delay once it has investigated all relevant conceptual and practical questions and completed its full due process.

Table of Contents

INTRODUCTION Reasons for issuing the IFRS Main features of the IFRS Potential impact of future proposals

International Financial Reporting Standard 4

Insurance Contracts

OBJECTIVE

SCOPE

Embedded derivatives

Unbundling of deposit components

RECOGNITION AND MEASUREMENT

Temporary exemption from some other IFRSs

Liability adequacy test

Impairment of reinsurance assets Changes in accounting policies

Current market interest rates

Continuation of existing practices

Prudence

Future investment margins

Shadow accounting

Insurance contracts acquired in a business combination or portfolio transfer

Discretionary participation features

Discretionary participation features in insurance contracts Discretionary participation features in financial instruments DISCLOSURE Explanation of recognised amounts Amount, timing and uncertainty of cash flows

Basis for Conclusions on IFRS 4 Insurance Contracts

This Basis for Conclusions accompanies, but is not part of, IFRS 4.

INTRODUCTION

BC1 This Basis for Conclusions summarises the International Accounting Standards Board's considerations in reaching the conclusions in IFRS 4 Insurance Contracts. Individual Board members gave greater weight to some factors than to others.

Background

BC2. The Board decided to develop an International Financial Reporting Standard (IFRS) on insurance contracts because:

(a) there was no IFRS on insurance contracts, and insurance contracts were excluded from the scope of existing IFRSs that would otherwise have been relevant (eg IFRSs on provisions, financial instruments, intangible assets).

(b) accounting practices for insurance contracts were diverse, and also often differed from practices in other sectors.

BC3 The Board's predecessor organisation, the International Accounting Standards Committee (IASC), set up a Steering Committee in 1997 to carry out the initial work on this project. In December 1999, the Steering Committee published an /ssues Paper, which attracted 138 comment letters. The Steering Committee reviewed the comment letters and concluded its work by developing a report to the Board in the form of a Draft Statement of Principles (DSOP). The Board started discussing the DSOP in November 2001. The Board did not approve the DSOP or invite formal comments on it, but made it available to the public on the lASB's Website.

BC4 Few insurers report using IFRSs at present, although many more are expected to do so from 2005. Because it was not feasible to complete this project for implementation in 2005, the Board split the project into two phases so that insurers could implement some aspects in 2005. The Board published its proposals for phase I in July 2003 as ED 5 Insurance

Contracts. The deadline for comments was 31 October 2003 and the Board received 135 responses. After reviewing the responses, the Board issued IFRS 4 in March 2004.

BC5 The Board's objectives for phase I were:

(a) to make limited improvements to accounting practices for insurance contracts, without requiring major changes that may need to be reversed in phase II.

(b) to require disclosure that (i) identifies and explains the amounts in an insurer's financial statements arising from insurance contracts and (ii) helps users of those financial statements understand the amount, timing and uncertainty of future cash flows from insurance contracts.

Tentative conclusions for phase II

BC6 The Board sees phase I as a stepping stone to phase II and is committed to completing phase II without delay once it has investigated all relevant conceptual and practical questions and completed its due process. In January 2003, the Board reached the following tentative conclusions for phase II:

(a) The approach should be an asset-and-liability approach that would require an entity to identify and measure directly the contractual rights and obligations arising from insurance contracts, rather than create deferrals of inflows and outflows.

(b) Assets and liabilities arising from insurance contracts should be measured at their fair value, with the following two caveats:

(i) Recognising the lack of market transactions, an entity may use, entity-specific assumptions and information when market-based information is not available without undue cost and effort.

(ii) In the absence of market evidence to the contrary, the estimated fair value of an insurance liability shall not be less, but may be more, than the entity would charge to accept new contracts with identical contractual terms and remaining maturity from new policyholders. It follows that an insurer would not recognise a net gain at inception of an insurance contract, unless such market evidence is available.

Guidance on implementing IFRS 4 Insurance Contracts

This guidance accompanies, but is not part of, IFRS 4. INTRODUCTION

IG1 This implementation guidance:

(a) illustrates which contracts and embedded derivatives are within the scope of the IFRS (see paragraphs IG2-IG4).

(b) includes an example of an insurance contract containing a deposit component that needs to be unbundled (paragraph IG5).

(d) discusses how an insurer might satisfy the disclosure requirements in the IFRS (paragraphs IG11-IG71).

3 booklets

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