The IASB continued its re-deliberations on the Exposure Draft Amendments to IFRS 17 (the ED) issued in June 2019. At its meeting on 25 February 2020, the IASB tentatively decided to:
• Retain unchanged the annual cohort requirement in IFRS 17 for all types of contracts, including contracts with intergenerational sharing of risks between policyholders (mutualised contracts)
• For insurance contracts without direct participation features, confirm the revised investment-return service proposals included in the ED and require that an entity should include costs related to investment activities as cash flows within the contract boundary if it performs investment activities to enhance benefits from insurance coverage for the policyholder (even if the contract does not provide an investment return service)
• Extend the risk mitigation option under the Variable Fee Approach (VFA) to permit an entity to apply the option when it mitigates the effects of financial risk using nonderivative financial instruments carried at fair value through profit or loss (FVPL)
• Amend Paragraph B66(f) to clarify that applying Paragraph B65(m) an entity should include in fulfilment cash flows income tax amounts that are specifically chargeable to the policyholder
• Add three further specific transition modifications and reliefs
• In addition, the Board confirmed several minor amendments and decided not to make changes for a
number of new topics raised by respondents to the ED.
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The IASB staff has also published the Agenda Papers for the IASB Board meeting to be held in the week of 16 March 2020.
In Agenda Paper 2A for the March meeting, the IASB staff recommends that the Board agree to an effective date of IFRS 17 Insurance Contracts (IFRS 17) for annual reporting periods beginning on or after 1 January 2023 (with early adoption permitted if an entity also applies IFRS 9 Financial Instruments (IFRS 9)). In effect, this means that the IASB staff recommends that the Board allow insurers one more year to prepare for the application of IFRS 17 compared to the proposals in the June 2019 Exposure Draft.
The IASB staff also recommends that the Board extends the fixed expiry date of the temporary exemption from applying IFRS 9 for qualifying insurers (as contained in IFRS 4 Insurance Contracts), so that all entities must apply IFRS 9 for annual reporting periods beginning on or after 1 January 2023.
The Board will review the whole package of amendments and consider the IASB staff’s recommendation on the effective date of IFRS 17, and the recommendation to extend the temporary exemption from applying IFRS 9, during its meeting in the week of 16 March.
The IASB staff also plans to request permission to start the balloting process for finalising amendments to IFRS 17 at that meeting. It expects the timetable will allow sufficient time for the Board to conclude its re-deliberations and finalise any resulting amendments in the second quarter of 2020.
If the Board confirms the staff’s recommendation to further defer the effective date of IFRS 17, preparers are effectively granted one year more to prepare for the initial application of IFRS 17. We expect in that case, the following key tasks to be addressed by preparers in the near future:
Look out for our next Insurance Accounting Alert for further details of the insurance contracts discussions at this March IASB meeting. Reach out if you have any questions!