IASB February 2009

The Board discussed the following key aspects of the measurement approaches identified by the staff as viable candidates for insurance contracts:

• features of a measurement approach
• measurement objective
• measurement of the margin at inception
  

The Board also discussed whether to add to a list of measurement candidates presented by the staff.
Features of a measurement approach

The Board tentatively decided that a measurement approach for insurance contracts conceptually should: 

• use estimates of financial market variables that are as consistent as possible with observable market prices
• use explicit current estimates of the expected cash flows 
• reflect the time value of money
• include an explicit margin

Measurement objective

The Board discussed whether a measurement approach for insurance contracts should be based on an exit notion or a fulfilment notion. Views diverged and no clear consensus emerged.
Measurement of the margin at inception

The Board tentatively decided that the margin at inception should be measured by reference to the premium and that therefore no day one gains should be recognised in profit or loss.
The Board will discuss at a future meeting how to treat acquisition costs and the part of the premium that recovers those costs.

Candidate measurement approaches

The Board discussed whether to add to the list of measurement candidates presented by the staff and asked the staff to analyse further whether to apply measurement approaches used in other existing and future standards, notably those on revenue recognition, financial instruments and non-financial liabilities.

The Board noted the arguments for and against an approach that uses an estimate of future cash flows with no margins and no discounting. The Board considered whether to use such an approach for non-life claims liabilities and tentatively decided not to add it to the list of candidates. The candidates to be considered at a future meeting include an unearned premium approach for short-duration pre-claims liabilities.

Next steps

In March, the Board will start discussing policyholder behaviour and policyholder participation.