IASB to propose amendments to IFRS 17

The International Accounting Standards Board (IASB) has signalled its intention to make amendments to the new insurance contracts standard, IFRS 17, in a bid to make implementation straightforward and also to make it easier for companies to explain the results of applying IFRS 17 to investors and others

At its January board meeting the board decided to propose targeted improvements in three areas, linked to the recognition of contract costs, reinsurance contracts and the investment service elements of a contract.

The proposed amendments would require allocation of insurance acquisition cash flows to anticipated future renewals, to better reflect the economics of contracts in scope of IFRS 17.

They would also require offsetting losses from onerous underlying contracts recognised in profit or loss on initial recognition with a gain on proportionate reinsurance contracts held. This would provide a better matching between reinsurance contracts held and onerous underlying insurance contracts.

In addition, the board papers indicate the amendments will not expand the scope of the variable fee approach to reinsurance contracts but will expand the scope for risk mitigation exemption for insurance contracts with direct participation features so that it also applies when an entity uses reinsurance contracts held to mitigate financial risk, if certain conditions are met. This would also provide a better matching between reinsurance contracts held and underlying insurance contracts.

The amendments would require consideration of existence of an investment return service in allocation of the contractual service margin (CSM) using coverage units, to better reflect the economics of contracts in scope of IFRS 17.

IASB said that on balance, these amendments meet the criteria for potential changes the board agreed in October 2018.

Staff will bring papers on the remaining implementation concerns and challenges during the first quarter of 2019 and expect to publish an exposure draft of the amendments to IFRS 17 around the end of the first half of 2019.

The board generally allows at least 12 to 18 months between the publication of new requirements and their mandatory effective date. The staff expect that this timetable would allow any proposed amendments to IFRS 17 to be finalised before 1 January 2022, which remains as the proposed effective date of IFRS 17. At a future meeting the Board plans to consider the package of all proposed amendments to ensure that they comply with proposed criteria.

Alex Bertolotti, global IFRS 17 leader at PwC, said: ‘The IASB’s vote to potentially amend IFRS 17 in a number of areas will be welcomed by many insurers, as the proposed amendments better reflect the economics of the insurance business.

‘We believe the proposed amendments will enable insurers to tell a clearer and more understandable story about their company with little change in the overall cost of implementation.’

IASB January board meeting papers are here.

Information on IFRS 17 is here.

Report by Pat Sweet

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