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Participating insurance contracts: Level of aggregation

Participating insurance contracts: Level of aggregation

IASB discusses its proposals for measuring participating insurance contracts under IFRS.



KPMG AG Wirtschaftsprüfungsgesellschaft


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Defining the level of aggregation is core to the insurance business.

The level of aggregation for measuring the contractual service margin was brought up for discussion in the IASB’s education session in February 2015.

The Board was reminded of its earlier decisions for non-participating contracts. It considered how these might impact the accounting for participating contracts, but did not make any decisions.

A principles-based approach

The objective of the proposed insurance contracts standard is to provide principles for measuring an individual insurance contract. 

Consequently, companies would be able to use different techniques for measuring insurance contracts, provided that the principles are met. 


“Defining the level of aggregation dives deeply into what is core to the insurance business, namely pooling of underwriting and – in the case of participating business – investment risks, which need to be transparent in the financial statements.” 


Calls for further clarification

Some Board members think that the IASB should further clarify the principles – specifically, whether contracts with different durations could be aggregated and, if so, how this would impact the recognition of the contractual service margin. 

For participating contracts, the staff believed that applying the aggregation principles could be less straightforward where: 

  • the company has discretion over the amount or timing of when returns on underlying items are passed on to policyholders; and   
  • this discretion results in some payments being paid to future policyholders.  

In this regard, the staff clarified that payments arising from existing contracts to future policyholders are, in principle, no different from payments from those contracts to existing policyholders. Therefore, this requirement does not affect the level of aggregation.

In general, Board members agreed that when a company's discretion permits it to insulate itself from potential losses, this should be considered when developing proposals for the application of the general model to contracts with participating features. 

Next steps for the project

The staff plan to consider whether the presence of regulatory constraints on pricing should result in any exception to the principles for measuring particular components of insurance contracts at a later date.

We will continue to report on the latest developments in the IASB’s insurance contracts project. Visit our IFRS – Insurance hot topics page.

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