BC128 Under some insurance contracts, the insurer is entitled to receive a periodic investment management fee. Some suggest that the insurer should, in determining the fair value of its contractual rights and obligations, discount the estimated future cash flows at a discount rate that reflects the risks associated with the cash flows. Some insurers use this approach in determining embedded values.

BC129 However, in the Board’s view, this approach can lead to results that are not consistent with a fair value measurement. If the insurer’s contractual asset management fee is in line with the fee charged by other insurers and asset managers for comparable asset management services, the fair value of the insurer’s contractual right to that fee would be approximately equal to what it would cost insurers and asset managers to acquire similar contractual rights. [This approach is consistent with the discussion of servicing rights and obligations in IAS 39.] Therefore, paragraph 25(b) of the IFRS confirms that an insurer cannot introduce an accounting policy that measures those contractual rights at more than their fair value as implied by fees charged by others for comparable services; however, if an insurer’s existing accounting policies involve such measurements, it may continue to use them in phase I.