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Latest updates on IFRS 17 Insurance Contracts

Insurance Consulting and Technology
IFRS 17 Solutions

April 24, 2020

Updates and analysis of the latest International Accounting Standards Board decisions.

Latest news

April 2020

IASB Remains Committed to a June 2020 Release of the Final IFRS 17

On 23 April, the IASB staff provided a verbal update to the Board on the initiatives in progress leading to the release of the final IFRS 17, anticipated in June 2020.

In spite of the challenges posed by COVID-19, the implementation of IFRS 17 remains urgent”

Ralph Ovsec
Senior Director

Ralph Ovsec, Senior Director, Insurance Consulting and Technology, at Willis Towers Watson, said: “In spite of the challenges posed by COVID-19, the implementation of IFRS 17 remains urgent, as entities need certainty of the amendments to IFRS 17 to avoid unnecessary and undue costs and disruptions in its implementation.”

A pre-ballot draft of IFRS 17 has been circulated to the Board and to a select group of SMEs, and many comments have already been received. The IASB staff is reviewing those comments to confirm whether any further adjustments to IFRS 17 are required. Any further adjustments will be brought to the May 2020 IASB meeting as sweep issues. June 2020 remains the target date for the release of the final IFRS 17. A webcast is being planned to introduce the amendments to stakeholders, with a date yet to be determined.

IFRS 17 was originally published in May 2017 and has been revised following feedback from key stakeholders both before and after the publication of the June 2019 Limited Exposure Draft.

March 2020

IASB Affirms Commitment to Extend IFRS 17 Effective Date and IFRS 9 Temporary Exemption for Insurers

The International Accounting Standards Board (IASB) today proposed the effective date of IFRS 17 Insurance Contracts be 1 January 2023. This represents a one-year delay to the date proposed in the June 2019 Exposure Draft Amendments to IFRS 17 and a two-year delay to the effective date set out in IFRS 17, as issued in May 2017. In addition, the Board proposed that the expiry date of the IFRS 9 temporary exemption for insurance contracts be similarly extended to 1 January 2023 to coincide with the proposed effective date of IFRS 17.

Ralph Ovsec, Senior Director at Willis Towers Watson, says, “We believe these extensions have addressed a number of the concerns raised by the industry and coordinate implementation efforts of IFRS 17 and IFRS 9. We encourage companies to continue to press forward at current pace and use this additional time to strengthen their processes and procedures as well as allow for more testing, dry runs and contingencies. We also believe a shared effective implementation date for IFRS 17 and IFRS 9 will avoid temporary earnings mismatches that would otherwise exist and reduce implementation costs. The current global environment adds significant resource and time constraints to insurers’ operations, and this additional respite will reduce those near-term pressures on insurers.”

February 2020

Minor changes to IFRS 17 as IASB concludes discussion of potential amendments

The International Accounting Standards Board (or Board) met on Tuesday 25 February to further discuss items related to the Exposure Draft (ED) Amendments to IFRS 17, published in June 2019. The meeting prioritised minimal disruption towards implementation of IFRS 17, possibly indicating a resolve to adhere to an effective date of 1 January 2022.

The Board confirmed there would be no change to the level of aggregation of contracts, thereby retaining annual aggregation for grouping of contracts, even those insurance contracts where risk sharing crosses generations. This was despite firms with participating business having expressed practical implementation concerns.

The most significant changes proposed by the Board at the meeting were:

  • Further clarity on the treatment of the Contractual Service Margin (CSM) for insurance contracts with investment features, requiring an entity to identify coverage units considering the quantity of benefits and service provided for investment coverage as well as insurance coverage.
  • Expanding the use of non-derivative financial instruments to insurance contracts with direct participation features.
  • Additional relief under the modified retrospective approach at transition with respect to certain elements affecting investment contracts with discretionary participating features, the effective date of reinsurance contracts held, and for policy choices made that impact prior period interim financial statements.

We think all stakeholders will welcome the conclusion of deliberations on changes to IFRS 17, even if some of the decisions reached do not reflect the wishes of some in the industry. With regard to the determination of the acquisition date of reinsurance contracts, ceding companies should be mindful in assessing potential unintended consequences related to the ability to take reinsurance relief on onerous contracts offered by reinsurance.

While the Board has shown its willingness to re-open issues beyond the scope of the amendments proposed in the ED, the focus of the Board appears to be to minimise disruption to ongoing implementation projects.

The IASB will hold its next board meeting in March when it is expected to take a final decision on the effective date of IFRS 17 (and IFRS 9 for insurers). The current proposal is 1 January 2022, although some respondents have proposed a further one-year delay to 1 January 2023. Staff at the IASB have also confirmed they expect the amendments to be finalised and a standard published in mid-2020.

January 2020

Continued deliberation on certain items of the IFRS 17 Exposure Draft

On 30 January 2020 the IASB continued deliberation on certain items of the IFRS 17 Exposure Draft issued in June 2019, consistent with the schedule agreed in November 2019. The IASB confirmed that it expects to finalise discussion of the remaining technical topics at its February meeting, thereby allowing the Board to consider the overall set of amendments as a package together with any implications for the effective date at the March meeting.

The Board decided not to amend the treatment of contracts acquired in their settlement period, other than on transition to IFRS 17. The treatment prescribed by IFRS 17 represents a departure from current accounting practice in most jurisdictions and will bring additional complexity by requiring entities, largely P&C insurers, to use the GMM and presentation of CSM and revenue on an open portfolio of outstanding claims.

The Board tentatively decided to amend paragraph B137 of IFRS 17, which will impact firms planning on using IFRS 17 for interim reporting. The change, which will enable entities to choose as an accounting policy the ability to change previous interim estimates in subsequent interim or annual reporting, is of significant practical benefit, and will help avoid a potential difference between group and subsidiary reporting. However there are other potential differences between group and subsidiary reporting that firms still need to consider.

The Board also decided that at transition, an entity is required to calculate an asset for insurance acquisition cash flows in respect of acquisition cash flows prior to the transition date relating, wholly or in part, to future unrecognised groups of renewed contracts. The relevant sections of the IFRS 17 Standard: Appendix C – Effective date and transition, will be amended accordingly. If application of the full retrospective approach is impracticable and the modified retrospective approach or the fair value approach are adopted, a determination of an asset for acquisition cash flows will still be required, with separate considerations for each method.

December 2019

IFRS 17: Proposed changes focus on reinsurance contracts

The International Accounting Standards Board (IASB) met on 11 December to begin the process of redeliberating some of the changes proposed in the June Exposure Draft (ED) and has decided to defer discussions on the effective date of IFRS 17 until the extent and complexity of all the amendments has been determined, expected end of February 2020.

The IASB’s intention to allow insurers to recognise gains on reinsurance contracts held in respect of groups of onerous underlying contracts had been welcomed by respondents since it addressed a fundamental accounting mismatch in the original standard. However, most respondents, including Willis Towers Watson, expressed concerns that the scoping of the relief had been drawn too narrowly in restricting use to a very limited range of reinsurance contracts. In response, the Board has agreed to significantly broaden the scope allowing losses on initial recognition of the underlying contracts to be offset by the matching reinsurance.

Read the full press release.

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