The financial accounting standards boards have agreed to issue guidance on how insurers should treat infrequent insured events in insurance contracts.

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board met in London earlier this month to deal with some more issues with the proposed insurance contracts project.

The new application guidance will clarify how an insurer includes an impending event if it looks like happening at the end of a reporting period.

Both boards have also agreed that insurers should measure insured event liability in a contract by applying a “building-block” approach to finalising an insurer’s accounts.

Any onerous contract liability should be included using a premium allocation approach, while also taking into account estimates of expected cash flows at the balance sheet date.

The boards also discussed onerous contracts and decided the measurement of liability in these should be updated at the end of each reporting period.

The IASB has decided that risk adjustment should be considered when identifying onerous contracts and that the measurement of a liability should be included.

Both boards also decided that if an insurer chooses not to discount the liability for incurred claims that are to be paid within 12 months, they should not use this to decide if the contracts are onerous.