Tag Archives: IFRS

Determining the Fair Value of insurance liabilities under IFRS 17

While the implementation date for International Financial Reporting Standard (IFRS) 17 is still two years away, the deadline is a relatively short one considering the significant changes required to companies’ financial reporting results, systems, and processes.

In their first sets of accounts under the new regime, companies need to show a restated balance sheet on an IFRS 17 basis as at the expected transition date of 1 January 2021. The calculation of the Contractual Service Margin (CSM) at the transition date is proving to be one of the most complicated parts of the regime’s implementation. Milliman’s Andrew Kay, Joseph Sloan and Rik van Beers provide perspective in this briefing note, which focuses on the Fair Value Approach to transition.

Will IFRS 17 replace embedded value?

International Financial Reporting Standard (IFRS) 17 embraces a marketing value accounting concept under which insurance contract liabilities are constantly updated to reflect environments at the reporting date. It also has a deferral accounting aspect. These features are anticipated to replace the roles that embedded value (EV) disclosure has been taking. However, as the insurance contract valuation by IFRS 17 is very complex, simpler market value accounting approaches like EV disclosure will be still more useful in some situations. This paper by Milliman consultant Takanori Hoshino compares the valuation approaches between IFRS 17 and EV and infers a potential future of EV disclosure.





The meeting of the Transition Resource Group for IFRS 17 insurance contracts

The Transition Resource Group (TRG) for IFRS 17 will meet four times during 2018 to discuss questions raised regarding the implementation of the IFRS 17 Standard. In this article, Milliman consultants summarise key points arising from the TRG meeting of 2 May 2018. The TRG meeting covered some of the implementation challenges raised by TRG members and a number of examples relating to the following concepts in IFRS 17:

• Coverage units
• Contract boundaries
• Risk adjustment at the group level
• Bundling insurance contracts





IFRS 17: Discount Rates

There are a number of areas of International Financial Reporting Standard (IFRS) 17 where the International Accounting Standards Board has allowed firms to make choices on their approaches. This paper by Milliman consultants focuses on the approaches available under IFRS 17 for the derivation of the discount rates for use in the various calculations required by the Standard.





Publication of IFRS 17: Insurance contracts

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.

Overview
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.

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