Insurance – Standard closer after variable fee decision

Insurance – Standard closer after variable fee decision

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

people crossing road with umbrellas

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

Substantial progress was made this month in the IASB's quest to find a workable solution for participating contracts.

The Board reached decisions on:

  • a variable fee approach to direct participating contracts;
  • the criteria for an insurance contract to qualify as a direct participating contract; and
  • releasing the contractual service margin.


“With the Board’s decision to use a variable fee approach for many participating contracts, the finalisation of the standard becomes attainable in the relatively near future.”


For more detail on these discussions, read Issue 46 of our IFRS Newsletter: Insurance. Previous issues can be found on our Newsletters web page.

Variable fee approach to direct participating contracts

The IASB decided to unlock the contractual service margin  for changes in the estimate of the variable fee for service that an entity expects to earn from direct participating contracts.

This fee would be equal to the entity’s expected share of returns on underlying items less any expected cash flows that do not vary directly with underlying items.


Direct participating contracts would be defined as contracts for which:

  • the contractual terms specify that the policyholder participates in a defined share of a clearly identified pool of underlying items;
  • the entity expects to pay the policyholder an amount equal to a substantial share of the returns from the underlying items; and
  • a substantial proportion of the cash flows that the entity expects to pay to the policyholder is expected to vary with the cash flows from the underlying items.


In addition, the IASB decided that an entity would recognise the contractual service margin in profit or loss on the basis of the passage of time for participating contracts.

Interaction with IFRS 9

At an education session, the IASB discussed feedback on applying IFRS 9 Financial Instruments before the new insurance contracts standard.

The staff’s papers:

  • provided observations about the issues raised thus far;
  • considered how entities would apply IFRS 9 in conjunction with the existing IFRS 4 Insurance Contracts; and
  • discussed the complexities of deferring the effective date of IFRS 9 for the insurance industry until the effective date of the forthcoming insurance contracts standard.

Expected timeline

The staff expect to ask the IASB for the technical decisions on outstanding issues during the remainder of 2015.

The effective date of the final standard will be discussed after the IASB has concluded its redeliberations on other topics.

A final standard is not expected in 2015.

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

© 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved.

KPMG refers to the global organization or to one or more of the member firms of KPMG International Limited (“KPMG International”), each of which is a separate legal entity. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. For more detail about our structure please visit

Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

Connect with us