Financial Services Ireland

IASB issues amendments to IFRS 17

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On 25 June 2020, the International Accounting Standards Board (IASB or the Board) issued amendments to IFRS 17 Insurance Contracts (IFRS 17 or the standard). These amendments follow from the Exposure Draft (ED) on proposed Amendments to IFRS 17 Insurance Contracts (published on 26 June 2019), and subsequent redeliberations based on feedback received on the ED from stakeholders.

As a result of its re-deliberations, the IASB has made changes to the following main areas of IFRS 17:

  1. Deferral of the effective date of IFRS 17 and IFRS 9 Financial Instruments (IFRS 9) for insurers by two years
  2. Scope of the standard
  3. Expected recovery of insurance acquisition cash flows from insurance contract renewals
  4. Contractual service margin (CSM) relating to investment activities
  5. Applicability of the risk mitigation option for contracts with direct participation features
  6. Reinsurance contracts held — expected recovery of losses on underlying onerous contracts
  7. Simplified presentation of insurance contracts in the statement of financial position
  8. Additional transition reliefs

In addition to the above changes, the amendments also include several other (minor) amendments and editorial changes to IFRS 17.

How we see it

  • Stakeholders are likely to welcome the changes made by the Board to address issues raised in the feedback on the published standard, particularly regarding the areas of acquisition cash flows and reinsurance recoveries.
  • There are other areas whether the IASB, after careful consideration, concluded no further changes were warranted. For example, in respect of the so called ‘annual cohort’ requirement (i.e., the requirement to include in IFRS 17 groups only contracts issued no more than 12 months apart); contracts that change in nature over time; and liabilities acquired in their settlement period for acquisitions after the transition date. Indeed, the issue of annual cohorts is seen as a key issue by preparers and other stakeholders in several jurisdictions, particularly for mutualised business. Some stakeholders will therefore be disappointed that the IASB has not made any amendments for this.
  • There are a number of changes made to IFRS 17 that will have a significant impact on implementation efforts. The decisions regarding the recovery of losses by reinsurance held, investment services and related investment expenses, recognition and impairment of assets arising from insurance acquisition cash flows, and reporting frequency will require significant evaluation and may cause preparers to rethink some of their IFRS 17 solutions.
  • In light of the deferral of the effective date of IFRS 17 and the extension of the temporary exemption from applying IFRS 9, preparers should consider the impact on their implementation plans. This would include reassessment of overall programme and workstream timeframes, as well as key milestones allowing for the new effective date; and updates to accounting policies and revisiting policy choices in response to the revised standard.
  • Preparers should also assess the current status of system design and configuration requirements in response to the revised standard and any changes to accounting policies; They also need to align their testing and parallel run strategy and planning, as well as building sufficient controls over the process, and ensure they update and engage key stakeholders (including regulators, analysts, etc.) on next steps and expected impacts.

Download the document from the link below, and don’t hesitate to reach out to us if you’d like to talk it through in greater detail.

Register here to join our next IFRS 17 webcast on Wednesday, 15 July “What I wish I had known about implementation before I started”.

Thought Leaders

Ciara McKenna

FS Partner, Assurance, Insurance

James Maher

Insurance, Sector Leader