IFRS Insurance Contracts
The IASB is undertaking a comprehensive project on the accounting for insurance contracts with the objective of developing a comprehensive standard that will address recognition, measurement, presentation and disclosure requirements.
Most editions of this newsletter focus on an IASB meeting and provide a summary of the discussions, including current status, schedule, key decisions and proposals, key considerations for entities, and forthcoming deadlines or due process steps to be undertaken.
The International Accounting Standards Board (“IASB”/ “the Board”) issued a Discussion Paper, Preliminary Views on Insurance Contracts, in May 2007. In August 2010, the Board issued Exposure Draft ED/2010/8 Insurance Contracts (“the 2010 ED”).
In June 2013, the Board issued revised Exposure Draft ED/2013/7 Insurance Contracts (“the 2013 ED”) which included changes in the insurance accounting proposals in response to the concerns raised by the insurance industry and other stakeholders on the 2010 ED. The Board decided to seek comments only on the 5 targeted areas where significant changes have been made since the 2010 ED. These are:
- unlocking the contractual service margin to reflect changes in cash flows for future coverage and/or services;
- splitting interest expense between profit or loss another comprehensive income;
- presenting insurance contract revenue and expenses;
- measuring and presenting cash flows from contracts with a contractual link to underlying items (“mirroring approach”); and
- transition provisions for the first application of the standard with a modified retrospective application of all the new requirements.
The comment period for the 2013 ED closed on 25 October 2013.
The Board also conducted extensive international fieldwork, discussions and outreach activities between June and December 2013.
In February 2016 the Board concluded that it has taken all the necessary due process steps and has granted the Staff permission to begin the balloting process. Since then the Board has sent a field testing questionnaire to a number of preparers to test the interpretation of the drafted words. The Board has considered issues arisen during the drafting process and is expecting to finish drafting and issue a standard in May 2017.
IFRS Project Insights: Insurance Contracts – March 2017
The Board met on 22 February 2017 to discuss the findings from a recent external editorial review of a draft of IFRS 17 Insurance Contracts and to vote on the last batch of sweep issues ahead of the release of the final text of IFRS 17.
The Board made tentative decisions regarding the accounting for changes to the CSM, and tentatively decided that an entity should be exempt from the requirement to divide a portfolio into group of contracts. All 12 Board members agreed with recommendations on the remaining sweep issues. Board members did not raise any other topics for consideration at a future meeting.
IFRS Project Insights: Insurance Contracts - January 2017
The Board met on 16 November 2016 to discuss the results and feedback from external testing and issues that arose during drafting.
The Board tentatively revised its previous tentative decision on the level of aggregation, retaining the definition of portfolio but refining the definition of groups. Groups are now defined as part of a portfolio comprising up to twelve months' worth of contracts that, at initial recognition, are unlikely to become onerous or are profitable but may become onerous in the future or, if any, are onerous contracts at initial recognition.
The Board tentatively revised its earlier tentative decisions on the reporting of experience adjustments under both the general measurement and the variable fee approach, tentatively approved 21 sweep issues, and tentatively decided that if it is published during the first half of 2017, IFRS 17 will be mandatorily applicable for annual periods beginning on or after 1 January 2021. Early application will be permitted, provided entities apply IFRS 9 and IFRS 15 at the same time.