Tag Archives: insurance contracts

What must health insurers consider regarding IFRS 17?

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.

FASB approves targeted improvements

The Financial Accounting Standards Board (FASB) has approved the issuance of a final Accounting Standards Update (ASU) of targeted changes to the accounting for long duration insurance contracts. The targeted improvements will be effective in 2021 with early adoption permitted. This paper by Milliman consultant William Hines outlines the decisions and discussions at the June 6, 2018, FASB meeting.

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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