Financial Services Ireland


Insurance Accounting Alert – January 2019

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At its meeting on the 23rd of January 2019, the IASB (or Board) tentatively decided to make changes to the following aspects of IFRS 17 Insurance Contracts:

  1. Deferral of Insurance acquisition cash flows for renewals outside the contract boundary
  2. Accounting for reinsurance contracts held when underlying insurance contracts are onerous
  3. Extending the scope of the risk mitigation exception in the Variable Fee Approach to include financial risk mitigation through reinsurance contracts
  4. Recognition of the contractual service margin in profit or loss under the general model for contracts containing investment components

The Board decided not to remove the prohibition in IFRS 17 from applying the Variable Fee Approach (VFA) to reinsurance contracts issued or held.

Insurance Accounting Alert

How we see it

  • The industry will welcome the four proposed changes to the topics discussed.
  • The allocation of a portion of acquisition cash flows directly attributable to newly issued contracts to future renewals should reduce the risk of onerous contracts being recognised. It also results in better alignment with the underlying economics of the business.
  • Many preparers may have preferred reinsurance contracts being eligible for the VFA. However, the possibility to identify reinsurance contracts as risk mitigation items under the VFA will be seen as a positive step by companies using such contracts. These companies will now be able to reflect their risk mitigation decisions in the accounting under IFRS 17.
  • By considering investment return services in determining the CSM release pattern, the Board is responding to the calls of stakeholders. A clear starting point is that this can only be the case if contracts contain an investment component. However, the assessment on matters such as whether or not to include investment return services and, if included, their relative weight and pattern of delivery would require considerable judgement, potentially giving rise to different applications in practice.
  • Including an investment return service may increase the reporting periods in which the liability for remaining coverage exists. This may affect the eligibility criteria for applying the premium allocation approach (PAA), and therefore could potentially reduce the number of contracts eligible for the PAA.

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.

Thought Leaders

Ciara McKenna

FS Partner, Assurance, Insurance

James Maher

Insurance, Sector Leader