GNAIE Criticises IASB’s Proposed Measurement Approach For Insurance Contracts

GNAIE pointed out that the CFV approach is based on settlement with the policyholder pursuant to the terms of the insurance contract

The Group of North American Insurance Enterprises (GNAIE) sharply criticised a new measurement approach for insurance contracts recommended by the staff of International Accounting Standards Board (IASB).

GNAIE has expressed disappointment that in developing an international accounting standard for insurance contracts, IASB staff diverged from the more appropriate Contract Fulfillment Value (CFV) approach, supported by the coalition of insurers and the US Financial Accounting Standards Board (FASB).

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. It is, therefore, fundamentally different than 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, IASB staff is recommending a measurement approach that remains under development in the IASB’s project to amend IAS 37, according to GNAIE. The insurance group also stressed that while recommending the IAS 37 approach, IASB staff did not address its basic flaws.

In the letter to the IASB, GNAIE observed that IAS 37 is still very much a work in progress with key issues yet to be resolved, such as treatment of service obligations.

GNAIE stated that the IASB and FASB joint project on Revenue Recognition is unfinished. However, GNAIE believes that the tentative conclusions reached by the two Boards, such as the customer consideration approach, are much more consistent with the CFV approach that the IASB is considering for insurance contracts than they are with the pending IAS 37 approach.

The goal of GNAIE is to influence international accounting standards to ensure that they result in high quality accounting and solvency standards for insurance companies and, to that end, to increase communications between insurers doing business in North America and international regulators and standard setters.