Insurance – Grappling with participating contracts

Insurance – Grappling with participating contracts

This IFRS newsletter brings you the latest on the IASB’s insurance project.

crowd crossing a street carrying open umbrellas

We examine the latest developments and what the discussions could mean for you.

Participating contracts – and, more specifically, how to modify the general insurance accounting model to apply to them – are still exercising the IASB’s minds.

Discussion at this month’s IASB meeting argued the merits of several options and gave the staff plenty to consider in producing future recommendations.


“The IASB is making significant progress towards a final standard that responds to industry concerns while striving for consistency with the concepts underlying other IFRSs.”


For more detail on these discussions, read Issue 45 of our IFRS Newsletter: Insurance. Previous issues can be found on our Newsletters web page. 

What the Board discussed in May

The meeting was an education session only, and the Board was not asked to make any decisions. The staff presented its analysis of certain key issues to further the debate, including:

  • how the variable fee approach would apply;
  • how indirect participating contracts would be accounted for; and
  • how interest expense should be presented.

The IASB also received an update on the interaction between IFRS 9 and the insurance contacts project.


The Board considered the possible application of the variable fee approach introduced in March 2015, including:

  • when there is mutualisation and how the effect of mutualisation would be reflected in the measurement of cash flows; and
  • the practicability of applying the proposals for the presentation of revenue and transition for non-participating contracts to participating contracts when an entity applies the variable fee approach.


The Board considered whether to modify its previous decisions on non-participating contracts so that a current rate is used to measure the contractual service margin subsequent to initial recognition.

It also revisited its discussion from September 2014 on determining interest expense in profit or loss or in other comprehensive income (OCI) – i.e. the effective yield approach. 


The staff presented the merits of providing issuers of participating contracts with an accounting policy choice to present the effects of changes in interest rates in profit or loss or in OCI.


The staff expect to ask the IASB for the remaining technical decisions, including on the accounting for direct and indirect participating contracts, during the remainder of 2015.

A final standard is no longer expected in 2015.

Visit our IFRS – Insurance hot topics page for the latest developments in the insurance contracts project.

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