Insurers will have to revise the way they treat reinsurance in their insurance contracts, according to new proposed global accounting standards.

Members of the International Accounting Standards Board (IASB) agreed at a meeting in London that a reinsurance contract does not transfer the insurance risk because an insurer is not exposed to the loss.

But the members also decided the reinsurer is responsible for the risk in their part of the reinsurance contract.

“A loss is defined as an excess of the present value of the cash outflows over the present value of the premiums,” the IASB said in a statement after the meeting last week.

The meeting also discussed how an insurer should assess the significance of the insurance risk at the insurance contract level.

“Contracts entered into simultaneously with a single counterparty for the same risk should be considered a single contract for the purpose of determining risk transfer,” the members said.

Further agreement at the meeting saw a move that will make insurers only recognise a reinsurance asset in their accounts when the contract is agreed.

“If the reinsurance coverage is based on aggregate losses, the insurer should recognise a reinsurance asset when the reinsurance contract coverage period begins,” the members agreed.

“The ceded portion of the risk adjustment should represent the risk being removed through the use of reinsurance.”

The members have also agreed an insurer should recognise a loss immediately if the reinsurance contract covered past events.

But there was disagreement on how a prepaid reinsurance contract should be treated in an insurer’s accounts.

Seven members of the 15-member IASB board voted against this proposal.

The board also looked at how non-performance of a reinsurer should be treated in insurance contract accounts.

“The assessment of risk of non-performance by the reinsurer should consider all facts and circumstances, including collateral,” the members agreed. “Losses from disputes should be reflected in the measurement of the recoverable when there is an indication that on the basis of current information, the insurer may be unable to collect amounts due according to the contractual terms of the reinsurance contract.”

The IASB meets again this month as part of a push to deliver a draft insurance contract accounting standard by the end of this month.