The International Accounting Standards Board (IASB) has completed its deliberations on potential amendments to IFRS 17 - a new international accounting standard for insurance contracts.
At a meeting on Tuesday, February 25, the IASB concluded its discussion on items related to the Exposure Draft (ED) Amendments to IFRS 17, published in June 2019.
One of the big decisions to come out of the discussion was the IASB’s confirmation that it will maintain the annual aggregation for grouping of insurance contracts, even for contracts where risk sharing crosses generations. This decision comes despite some participating firms voicing concerns about practical implementation.
The IASB did propose some changes to IFRS 17. The board wishes to expand the use of non-derivative financial instruments to insurance contracts with direct participation features.
Furthermore, they asked for more clarity on the treatment of the Contractual Service Margin (CSM) for insurance contracts with investment features. The IASB would like a party to identify coverage units considering the quantity of benefits and service provided for investment coverage in addition to insurance coverage.
Finally, the board proposed more relief under the modified retrospective approach at transition, with respect to some 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.
“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,” said Ralph Ovsec, senior director, Insurance Consulting and Technology, at Willis Towers Watson. “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.”
Staff at the IASB have also confirmed they expect all amendments to IFRS 17 to be finalised and a standard published in mid-2020. The IASB is expected to make a final decision on the effective date of IFRS 17 at its next meeting in March. The current proposal is January 01, 2022, but there are some suggestions that there might be a further one-year delay.
