The International Accounting Standards Board (IASB) has tentatively decided that insurance contract assets and liabilities should initially be recognised when the coverage period begins.

The IASB says the US-based Financial Accounting Standards Board has tentatively agreed to require the recognition of an onerous contract liability in the pre-coverage period if management becomes aware of onerous contracts in that period.

A tentative decision does not become a requirement until it is incorporated into a standard.

The two boards considered alternative presentation models for insurers’ performance statements and have asked the IASB’s advisory Insurance Working Group for more research to understand which approach will most help users of financial statements and what practical difficulties might be posed for insurers.

The boards decided not to provide a practical means for determining a discount rate for a subset of entities. They did discuss the discount rate for participating contracts and tentatively decided that the objective of the rate used to measure participating contracts should be consistent with the rate used for non-participating contracts.

There was also tentative agreement to provide guidance on participating contracts that, to the extent that the amount, timing or uncertainty of the cash flows arising from a contract depend on the performance of specific assets, the insurer should adjust those cash flows using a discount rate that reflects the dependency.

The IASB exposure draft “Insurance Contracts” and the FASB discussion paper “Preliminary views on insurance contracts” propose to define an insurance contract as “a contract under which one party accepts significant insurance risk from another party by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder”.