An organization representing major life and property/casualty insurance and reinsurance companies has criticized a new measurement approach for insurance contracts recommended by the staff of the International Accounting Standards Board.
The Group of North American Insurance Enterprises expressed disappointment that in developing an international accounting standard for insurance contracts, the IASB staff diverged from the contract fulfillment value approach supported by the coalition of insurers and the U.S. Financial Accounting Standards Board.
"The IASB could take a significant step toward convergence of international accounting standards if it is able to reach the same conclusion that FASB reaches for the measurement approach for insurance contracts," GNAIE executive chairman Jerry de St. Paer said in a September 9 letter to IASB Chairman Sir David Tweedie. The IASB will be considering the measurement basis for insurance contracts at its September 18 meeting.
The GNAIE pointed out that the CFV approach is based on settlement with the policyholder pursuant to the terms of the insurance contract, including the service element of the contract, and therefore is fundamentally different from a measurement approach that is based on immediate settlement or transfer of insurance obligations, which almost never occurs and is a largely theoretical concept.
Rather than supporting the preferred CFV approach, the IASB staff is recommending a measurement approach that remains under development in the IASB's project to amend IAS 37, according to the GNAIE. The insurance group also stressed that while recommending the IAS 37 approach, the IASB staff did not address its basic flaws.
GNAIE believes there are fundamental problems with attempting to measure insurance contracts using the pending IAS 37 approach, and those problems cannot be addressed as well in such a measurement approach as they could be in the CFV approach, said de St. Paer.
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