Following the public consultation on proposed amendments to IFRS 17 which ended on 25 September, the IASB tentatively decided at its November Board meeting on the amendments they would accept, the ones they would redeliberate on, and the ones they will not accept. The full list can be consulted here. Overall, the current re-deliberations plan seems rather positive as the IASB agreed to re-discuss the issues of timing, annual cohort for mutualized business, interim financial statements and reinsurance, among others. Unfortunately, the IASB decided not to reconsider certain issues including principle-based relief for transition, risk mitigation under the GMM, use of locked in discount rate, comparative information and VFA for reinsurance contract among others. While the overall outcome is considered positive, it does not guarantee that all the changes the industry seeks will be granted by the IASB. The secretariat has prepared a high-level analysis of issues raised by the European Parliament, European Commission, EFRAG and the Industry
The IASB began its re-deliberations at its December Board meeting, on 11 December. The IASB staff recommended that the Board approve changes to the expected recovery of insurance acquisition cash flows and to the recovery of losses on reinsurance contracts held (IASB IFRS 17 papers – December 2019.pdf ). Initial feedback from the industry has been positive on the IASB staff’s recommendations, especially on the reinsurance issue for which the IASB is going further than what was suggested in the joint CFOF / Insurance Europe letter.
The IASB still has 11 topics to re-deliberate on until the February / March Board meetings. We already had indications that the IASB will discuss the timing issue at the end of the re-deliberations process in February or in March. While the IASB decisions on the first two topics re-deliberated are positive, there is no guarantee that the IASB will put forward additional changes. It is important that the industry put pressure on the IASB in the coming months to ensure appropriate changes are made.
One opportunity to voice our concerns in at the Accounting Standards Advisory Forum (ASAF) meeting on 16-17 December (ASAF paper on IFRS 17.pdf). Members are invited to contact their representatives on the ASAF to communicate on the areas we still need to have changes (in particular annual cohorts and timing). The secretariat has already reached out to insurance associations outside Europe to coordinate our efforts ahead of the ASAF meeting.
While the IASB is going through its re-deliberations exercise, EFRAG has picked up its endorsement work. 2
Following a request from the European Parliament, EFRAG is investigating the relationship and interlinkage between IFRS 17 and IFRS 9. In particular, EFRAG is investigating insurers’ ability to apply hedge accounting for insurance liabilities. The industry has been arguing that hedge accounting cannot be applied for insurance liabilities for a while now, and auditors have recently confirmed at an IAWG meeting that there is great uncertainty around the issue. The industry’s preferred solution would be to extend the risk mitigation option to the General Model. The EFRAG staff has called for additional evidence to be provided by the industry. The secretariat has encouraged members of the CFOF to participate in this exercise.
The EFRAG staff is also preparing a limited update to the IFRS 17 case study (the draft can be consulted here). One of the key issues, which the secretariat IE has already communicated to the EFRAG staff, is the consultation period put forward by the EFRAG staff (January to March/ April). It is challenging to provide numerical data and commit resources to the updated testing exercise when there is no clarity on the changes brought by the IASB. The EFRAG staff base their decision on the timing of the case study on the endorsement plan approved by the EFRAG Board, according to which the final DEA consultation should begin in July 2020. Any delay to the proposed timeline would mean the standard may not be endorsed before 31 December 2021.