EBA欧洲银行-20071116CEBSCLDPInsurancecontracts_000_6页_152kb

CEBS Comments on the IASB Discussion Paper: Preliminary Views on Insurance Contracts

Core Content

The Committee of European Banking Supervisors (CEBS) has provided comments on the IASB Discussion Paper on Insurance Contracts, focusing on the implications of the proposed accounting model for insurance liabilities and its potential interactions with other IASB projects. CEBS emphasizes the importance of maintaining consistency with the IASB conceptual framework and other projects such as Financial Instruments and Fair Value Measurements.

Main Points and Key Issues

1. Relevance to Banking Supervisors

• CEBS supports the IASB's efforts to revise the accounting model for insurance contracts.
• They highlight the importance of high-quality accounting and disclosure standards for the banking and financial industry.
• They believe that the DP may have implications for other areas of noninsurance accounting, particularly due to its conceptual similarities with financial instruments using fair value measurement approaches.

2. Conceptual Framework and Other IASB Projects

• CEBS encourages the IASB to identify and consider the links between the DP and the conceptual framework project, as well as other relevant IASB projects.
• They emphasize the need for consistency in the general principles being developed across different projects.

3. Current Exit Value Model

• The DP proposes a current exit value model for insurance liabilities, which is conceptually similar to the fair value model in SFAS 157 and the IASB's conceptual framework.
• However, the DP includes an explicit risk margin, which is compensation for bearing risk, not present in SFAS 157.
• CEBS suggests that this concept should be considered in the redefinition of fair value in the measurement project.

4. Transfer Value vs. Settlement Value

• The DP defines transfer value based on market participant perspectives, but CEBS is concerned about the subjectivity involved when there is no available market data.
• They suggest that settlement values should be considered in the absence of market data, to ensure reliability in financial reporting.

5. Profit at Inception

• CEBS is concerned that recognizing day-one profits or losses could lead to reliability issues, especially when unobservable inputs are used in valuation techniques.
• They stress the need for strong risk management and valuation controls in such cases.

6. Own Credit Risk

• CEBS believes that own credit spreads should not be incorporated into the fair value of liabilities.
• Including them may lead to misleading information for financial statement users, as it could imply gains when an entity's credit quality deteriorates.

7. Beneficial Policyholder Behaviour

• CEBS supports the inclusion of expected future cash flows from policyholder behavior in the measurement of insurance liabilities.
• However, they do not support extending this model to financial instruments, as it may introduce subjectivity and various practices in recognition and measurement.
• They are also concerned about the clarity of the concept of guaranteed insurability and its potential to misclassify assets as liabilities.

8. Unbundling of Deposit Components

• CEBS supports the unbundling of deposit components in insurance contracts, provided that they meet the definition of a financial instrument.
• They believe that unbundling criteria should be consistent between IAS 39 and the insurance contract standard.

9. Treatment of Financial Guarantees

• CEBS advocates for consistent treatment of contracts with similar economic characteristics, regardless of legal form.
• They are concerned about the lack of clear distinction between credit insurance contracts (under IFRS 4) and financial guarantee contracts (under IAS 39), which could lead to arbitrage opportunities.
• They encourage the IASB to further explore this issue to ensure comparability and consistency across entities.

10. Service Margin

• CEBS is not opposed to the concept of a service margin, but they believe it needs further clarification.
• They suggest that the DP should provide more detail on how the service margin interacts with other IFRS standards, especially IAS 18.

Summary of Key Recommendations

• The IASB should further explore the differences between the current exit value model and the fair value model in the measurement project.
• The market participant view should be applied with caution, especially in the absence of market data.
• The concept of guaranteed insurability needs to be clearly defined.
• Unbundling criteria should be consistent across IAS 39 and the insurance contract standard.
• Financial guarantees should be treated consistently, regardless of legal form.
• The service margin concept requires more detailed clarification in relation to other IFRS standards.

Conclusion

CEBS emphasizes the importance of consistency, reliability, and comparability in financial reporting. They encourage the IASB to carefully consider the implications of the DP on broader accounting principles and to ensure that the proposed model aligns with existing standards and concepts.