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SFAS
40 Insurance Contracts |
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 Status |
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Issued by the Financial Accounting Standards Committee In Taiwan on
December 4, 2008. |
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Summary |
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The objective of this Standard is to specify the financial reporting
for insurance contracts by any entity that issues such contracts. In
particular, this Standard requires disclosure that identifies and
explains the amounts in an insurer’s financial statements arising
from insurance contracts and helps users of those financial
statements understand the amount, timing and uncertainty of future
cash flows from insurance contracts. An insurance contract is a
contract under which one party (the insurer) accepts significant
insurance risk from another party (the policyholder) by agreeing to
compensate the policyholder if a specified uncertain future event
(the insured event) adversely affects the policyholder.
The Standard applies to all insurance contracts (including
reinsurance contracts) that an entity issues and to reinsurance
contracts that it holds, and financial instruments that it issues
with a discretionary participation feature. It does not apply to
other assets and liabilities of an insurer, such as financial assets
and financial liabilities within the scope of SFAS 34 Financial
Instruments: Recognition and Measurement. Furthermore, it does not
address accounting by policyholders. |
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The Standard: |
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(a) prohibits provisions for possible claims under contracts that
are not in existence at the end of the reporting period (such as
catastrophe and equalization provisions). |
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(b) requires a test for the adequacy of recognized insurance
liabilities and an impairment test for reinsurance assets. |
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(c) requires an insurer to keep insurance liabilities in its balance
sheet until they are discharged or cancelled, or expire, and to
present insurance liabilities without offsetting them against
related reinsurance assets. |
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The Standard permits an insurer to change its accounting policies
for insurance contracts only if, as a result, its financial
statements present information that is more relevant and no less
reliable, or more reliable and no less relevant. In particular, an
insurer cannot introduce any of the following practices, although it
may continue using accounting policies that involve them: |
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(a) measuring insurance liabilities on an undiscounted basis. |
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(b) measuring contractual rights to future investment management
fees at an amount that exceeds their fair value as implied by a
comparison with current fees charged by other market participants
for similar services. |
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(c) using non-uniform accounting policies for the insurance
liabilities of subsidiaries. |
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The Standard permits the introduction of an accounting policy that
involves remeasuring designated insurance liabilities consistently
in each period to reflect current market interest rates (and, if the
insurer so elects, other current estimates and assumptions). Without
this permission, an insurer would have been required to apply the
change in accounting policies consistently to all similar
liabilities. |
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The Standard requires disclosure to help users understand: |
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(a) the amounts in the insurer’s financial statements that arise
from insurance contracts. |
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(b) the amount, timing and uncertainty of future cash flows from
insurance contracts. |
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Effective
date |
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This Standard shall be effective for fiscal years beginning on or
after January 1, 2011. Earlier adoption is permitted. |
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