The International Accounting Standards Board (IASB) is consulting on proposed amendments to the Insurance Contracts standard, IFRS 17 before it is even introduced to reduce the costs of implementation and make it easier for companies to explain their financial results after they apply the standard
IFRS 17 was issued in May 2017, and IASB said it is designed to alleviate concerns and challenges raised about implementing the standard. It is also proposing to defer the effective date of the standard by one year to 2022, due to criticism over the complexity of the changes and general compliance issues.
As well as deferral of the date of initial application of IFRS 17, the proposals include changing the fixed expiry date for the temporary exemption in IFRS 4 Insurance Contracts from apply IFRS 9 Financial Instruments, so that entities would be required to apply IFRS 9 for annual periods beginning on or after 1 January 2022.
There is an additional scope exclusion for loan contracts that transfer significant insurance risks and related transaction requirements to enable entities issuing such contracts to account for them applying either IFRS 17 or IFRS 9. There is also an additional scope exclusion for credit card contracts that provide insurance coverage.
The proposals include amendments regarding allocation, recognition, assessment of recoverability, and disclosure regarding insurance acquisition cash flows relating to expected contract renewals. There are changes to the contractual service margin allocation relating to investment components and related disclosure requirements, and an extension of the risk mitigation option to include reinsurance contracts held.
The consultation also looks at simplified presentation of insurance contracts in the statement of financial position so that assets and liabilities would be determined using portfolios of insurance contracts rather than groups of insurance contracts. It considers additional transition relief for business combinations, and for the date of application of the risk mitigation option and the use of the fair value transaction approach.
IASB says the amendments are designed to minimise the risk of disruption to implementation already underway, and do not change the fundamental principles of the standard.
Hans Hoogervorst, IASB chair, said: ‘Moving to IFRS 17 is a big task and this proposed package of targeted amendments will help insurers in their ongoing implementation of the new standard.’
The deadline for comments is 25 September 2019.
By Pat Sweet