Impairment of reinsurance assets

BC107 ED 5 proposed that a cedant should apply IAS 36 Impairment of Assets to its reinsurance assets. Respondents opposed this proposal for the following reasons:

(a) This would compel many cedants to change their accounting model for reinsurance contracts in a way that is inconsistent with the accounting for the underlying direct insurance liability.

(b) IAS 36 would require the cedant to address matters that are beyond the scope of phase I for the underlying direct insurance liability, such as the cash flows to be discounted, the discount rate and the approach to risk. Some saw IAS 36 as an indirect way of imposing something similar to a fair value model. There would also have been systems implications.

(c) Reinsurance assets are essentially a form of financial asset and should be subject, for impairment testing, to IAS 39 [IFRS 9 Financial Instruments replaced IAS 39. IFRS 9 applies to all items that were previously within the scope of IAS 39.] rather than IAS 36.