Financial Services Ireland


Insurance Accounting Alert – TRG meeting update

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The IASB’s Transitional Resources Group (TRG) met on September 26th and 27th for their third technical discussion on IFRS 17, where the group continued their discussion on implementation issues raised by practitioners.

The group discussed ten issues in detail, covering areas of uncertainty identified by preparers, for which the IASB had prepared staff papers. Those staff papers, along with the TRG discussion, provide helpful clarifications in a number of areas including:

  • Determining top-down discount rates, where cash flows don’t vary based on the return of underlying items,
  • Treatment of upfront commissions, and reinstatement premiums in reinsurance contracts, following an insured event
  • Consideration of cash flows as relating to new or existing contracts in the context of contract boundaries, where facts and circumstances change
  • Treatment of acquisition cash flows between profitable and onerous contracts; where cash flows cannot be recovered from the portfolio of contracts to which they relate
  • Additional examples of when loans and other forms of credit which contain a relatively small insurance component may be accounted for as insurance contracts
  • Analysis of how to apply judgement in determining whether a single legal contract should be accounted for as a whole or separately, in the context of group insurance policies

The discussion also highlighted a number of operational challenges to be considered by preparers in the practical application of IFRS 17.

Other topics discussed in detail at the TRG meeting include:

  • Insurance risk consequent to an incurred claim – the treatment of insurance risk created by an incurred claim
  • Premium experience adjustments related to current or past service – should differences between actuals and expected premiums relating to current or past service be adjusted in the CSM or recognised in P&L
  • Premium waivers – is a contract with a premium waiver in certain circumstances considered an insurance contract
  • Group insurance policies – consideration of what cash flows are within the contract boundary where the entity providing insurance coverage to members can terminate the policy within a notice period
  • Industry pools managed by an association – should risk adjustment be measured at the association level or individual member entity level
  • Annual cohorts for contracts that share in the return of a specified pool of underlying items – in what circumstances does measuring the CSM at a higher than annual cohort level (eg portfolio level) achieve the same accounting outcome

A number of other questions submitted by practitioners were also discussed in brief, details of which are included in this Insurance Accounting Alert.

Other IFRS 17 updates

The IASB is expected to hold an educational session at their next board meeting, during the week of October 22nd, 2018, where items such as the EFRAG letter issued on September 3rd, 2018 will be discussed. EFRAG, the EU accounting standards advisory body, are in the process of preparing their draft endorsement advice on IFRS 17. The EFRAG letter identified a number of topics which the EFRAG board merit further consideration by the IASB. EFRAG note that they have not yet determined the impact of the concerns raised on their draft endorsement advice.

There is speculation in the industry on timelines for implementation of IFRS 17, with interested parties such as the Association of British Insurers, and Insurance Europe calling for delays to the effective date. This would allow time to address a number of underlying issues and for companies to be ready for implementation. Neither the IASB nor EFRAG have indicated that any changes to the timelines will be proposed, so insurers should not pause implementation projects at this point.

Please download the document below for more detailed insights, and if you have a question, please do get in touch.

Thought Leaders

Ciara McKenna

FS Partner, Assurance, Insurance

James Maher

Insurance, Sector Leader