International Financial Reporting Standard (IFRS) 17 Insurance Contracts was issued by the International Accounting Standards Board (IASB) on 18 May 2017 and had an initial effective date of annual periods beginning on or after 1 January 2021. However, IASB in its November 2018 meeting voted to propose a one-year deferral of the effective date for the new insurance contracts standard to 2022. It has also decided to propose extending to 2022 the temporary exemption for insurers to apply the financial instruments standard, IFRS 9, so that both IFRS 9 and IFRS 17 can be applied at the same time. It is intended to provide updated information about the obligations, risks and performance of insurance contracts, to increase transparency in financial information reported by insurance companies to help boost market confidence and to introduce consistent accounting for all insurance contracts based on a current measurement model. It also requires a company to recognise profits as it delivers insurance services (rather than when it receives premiums) and to provide information about insurance contract profits the company expects to recognise in the future.
However, a closer look at IFRS 17 highlights some complexities that come with increased transparency and consistency in reporting. This article by Milliman’s Joanne Buckle and Neha Taneja focuses on some of the complexities and considerations for short-term health insurers.
Since the publication of International Financial Reporting Standard (IFRS) 17 in May 2018, the insurance industry has begun the implementation process in advance of the original effective date of 1 January 2021. However, following the tentative decision of the International Accounting Standards Board (IASB) in late 2018, the effective date is likely to be postponed to at least 1 January 2022.
As the industry has begun to implement the Standard, a number of issues, both practical and theoretical in nature, have been raised. These issues have been brought to the attention of the IASB through the Transition Resource Group (TRG), and also through industry bodies and groups such as the CFO Forum.
At its October 2018 meeting, the IASB agreed a set of criteria by which any proposed amendment to IFRS 17 would be assessed:
• Any amendment should not result in significant loss of useful information in respect of relevance and faithful representation, comparability and internal consistency and complexity and understandability
• Any amendment should not unduly disrupt implementations processes or risk undue delays to the effective date
At the January 2019 IASB meeting, four of these issues were discussed and the IASB tentatively approved a number of amendments to the Standard. This paper by Milliman’s Thomas Bulpitt provides an overview of those amendments and the outcomes of the discussions.
International Financial Reporting Standard (IFRS) 17 is the biggest accounting change for insurers in many years. The new insurance contracts accounting standard also has actuarial implications. Under IFRS 17, detailed reserving outputs and granular analysis of change will be disclosed for the first time. Items such as discount rates and risk adjustment will have a direct impact on the reported profit in the accounts.
According to the International Accounting Standards Board, there is only one model, the General Model, insurance companies should use to value insurance contracts. The Premium Allocation Approach (PAA) is a simplification of this basis, which an entity may use as an approximation for measuring contracts over the remaining coverage period.
In this paper, Milliman’s Lamia Amouch, Laura Hobern, and Derek Newton present five key challenges that insurers will need to address when using PAA.
Milliman is pleased to announce that Principal William Hines has been named an observer to the International Accounting Standards Board (IASB) International Financial Reporting Standard (IFRS) 17 Transition Resource Group (TRG). IFRS 17, which was adopted in May, represents a significant change from current accounting practices and is expected to require substantial effort from companies to comply. Hines is one of only three observers and 15 members that make up the TRG; the group was created to help support companies as they transition to the new Standard.
Hines was appointed an observer from the International Actuarial Association (IAA), where he chairs the Insurance Accounting Committee. He has spent the past 15 years actively involved in the insurance project, presenting research to the IASB’s Insurance Working Group, and to IASB members and staff. During the IFRS 17 development process, Hines was part of the American Academy of Actuaries (AAA) IFRS Task Force and Financial Reporting Committee, which provided input to the Board. He has been invited to speak at conferences around the world, and has published extensively on the topic of IFRS accounting for insurance.
William has extensive experience consulting, researching, writing, and presenting on IFRS 17. There are not many people who can say they’re passionate about financial reporting issues for insurers—but William is one such person. I’ve no doubt his expertise will be invaluable to the Transition Resource Group and the firms it supports as we make the significant transition to IFRS 17.
For more information on the appointment, click here.
On 18 May 2017 the International Accounting Standards Board (IASB) published its new International Financial Reporting Standard (IFRS) on accounting for insurance contracts: IFRS 17. IFRS 17 will apply for accounting periods starting on or after 1 January 2021, but prior year comparative figures will be required.1
The Standard is directed at insurance contracts, rather than insurance entities. So it will apply, for example, to equity-release mortgages written by banks, as well as to those listed insurers required to report under the IFRS and to those insurers that adopt the IFRS voluntarily.
The publication was accompanied by webinars conducted by members of the IASB Staff, including Q&A sessions.2 The responses provided by the staff were caveated as being their own views, and not necessarily those of the IASB. Nevertheless, the answers offer some interesting insights, which are briefly summarised in this blog.
The aim of the Standard is consistent accounting for all insurance contracts, with increased transparency in financial information reported by insurance companies and calculated information based on current estimates. However, the staff acknowledges that the Standard is not directionally convergent with the aims of the Financial Accounting Standards Board (FASB), the standard setter for the United States.
In summary, the principle-based Standard requires an assessment of the profitability of insurance contracts when they are first issued and, if positive, recognition of that value (the Contractual Service Margin or CSM) over the lifetime of the contracts in a manner that reflects the timing of the insurance services provided by the insurer.3
The staff expects firms to incur significant implementation costs.
Progress continues to be made by the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) toward the next exposure draft of an accounting standard for insurance contracts. In addition, the boards are moving closer to further changes to the accounting for the assets backing insurance contracts. However, convergence between the FASB and IASB appears to be limited, both for the insurance contract project and more generally.
This white paper provides an update on recent activity on these topics.