Financial Reporting Brief special edition (March 2014)
FRS 103 Insurance Contracts
On 20th March 2014, the Financial Reporting Council published FRS 103 Insurance Contracts.
The new standard is applicable to entities that have insurance contracts (including reinsurance contracts) and are applying FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. The standard is also applicable to entities applying FRS 102 who issue financial instruments with a discretionary participation feature.
FRS 103 consolidates existing guidance included within the International Accounting Standard Board’s (IASB’s) IFRS 4 Insurance Contracts, the existing requirements of FRS 27 Life Assurance and elements of the Association of British Insurers’ Statement of Recommended Practice on Accounting for Insurance Business (ABI SORP). It allows entities to continue with their current practices for insurance contracts (subject to certain additional considerations, such as, for example, identification of embedded derivatives) whilst also allowing them the flexibility to take advantage of “improvement options” (subject to legal and regulatory requirements) similar to those which are available to entities applying IFRS 4 in the UK and Republic of Ireland.
FRS 103 is applicable for accounting periods beginning on or after 1 January 2015. Early application is permitted, provided the entity also applies FRS 102 from the same date and discloses this fact that it has applied FRS 103 early. Once FRS 103 is adopted, FRS 27 and the ABI SORP will cease to apply.
FRS 103 is expected to have a limited life and will be revisited by the FRC when the International Accounting Standards Board (IASB) completes its own Insurance Accounting project.
Our special edition financial reporting brief discusses some of the main issues and highlights of the standard.