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IFRS 17, Insurance Contracts [Completed]

Effective date and transitional provisions:

IFRS 17 is effective for annual reporting periods beginning on or after January 1, 2021. Earlier application is permitted, if both IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments have also been applied.

Last updated:

June 2018


Overview

When the IASB began its work in 2001, International Accounting Standards had no standard on insurance contracts. In anticipation of adoption of IFRS by a number of jurisdictions, including the European Union, the IASB published IFRS 4, Insurance Contracts. That Standard enabled existing practices to be maintained and was intended as a stopgap measure pending a more fundamental reassessment of the accounting for insurance contracts. As a result, IFRS today has little guidance for entities that issue insurance contracts.

The IASB’s 2010 ED, Insurance Contracts, represented an important milestone in Phase II of the IASB’s project to revise fundamentally IFRS 4. Specifically, the ED required insurance liabilities to be measured using a transparent ‘building blocks’ accounting model based on a discounted probability weighted estimate of future cash flows. The proposed ‘building block’ approach for recognition of the insurance contract obligation is very different to the approaches and methods used currently; it includes three building blocks:  (i) a current probability-weighted estimate of the future cash flows; (ii) a discount rate and a risk adjustment; (iii) a residual margin for uncertainty and future profits.

While the model presented in the 2010 ED was broadly supported, certain specific issues were raised by stakeholders that the IASB has sought to address in its revised 2013 ED.  The revised proposals respond to these issues by introducing important changes in three main areas, namely:

  1. to refine the measurement approach to propose that: (a) an entity should recognize any change in estimates relating to future profits to be earned for insurance coverage under an insurance contract over the period in which that profit is earned; and (b) a measurement and presentation exception to reflect situations in which there can be no economic mismatch between the insurance contract and assets backing that contract.

  2. to develop the presentation approach to propose that an entity should (a) align the presentation of revenue with that required for other contracts with customers by other IFRSs; and (b) present interest expense from insurance contracts in a way that enables an amortized cost-based expense to be presented in profit or loss and a current value-based balance sheet to be presented.

  3. to amend the transition approach to propose simplifications that maximize the use of objective data and to improve comparability for contracts originated before and after application of the proposals

The revised 2013 ED sets out in full the proposals for the accounting for insurance contracts.  However, respondents are asked for comments on the key areas that the IASB has changed as a result of the responses it received to the 2010 ED.

On May 18, 2017, the IASB published a new standard, IFRS 17, Insurance contracts. The new standard requires insurance liabilities to be measured at a current fulfillment value and provides a more uniform measurement and presentation approach for all insurance contracts. These requirements are designed to achieve the goal of a consistent, principle-based accounting for insurance contracts. IFRS 17 supersedes IFRS 4, Insurance Contracts and related interpretations and is effective for periods beginning on or after January 1, 2021, with earlier adoption permitted if both IFRS 15, Revenue from Contracts with Customers and IFRS 9, Financial Instruments have also been applied.

 

Other developments

June 2018

On June 1, 2018, the Basis for Conclusions and Illustrative Examples issued by the IASB in May 2017 that accompany, but are not part of IFRS 17, Insurance Contracts, have been added to Part I of the CPA Canada Handbook.

March 2018

On March 1, 2018, the AcSB endorsed IFRS 17, Insurance Contracts, and it is now in Part I of the CPA Canada Handbook – Accounting. The standard is effective for annual periods beginning on or after January 1, 2021. Earlier application permitted for companies that also apply IFRS 9 and IFRS 15.

May 2017

On May 18, 2017, the IASB published a new standard, IFRS 17, Insurance contracts.

January 2017

On January 19, 2017, the IASB staff updated the Work Plan in respect of this project to indicate that the IASB expects to publish the new insurance standard, IFRS 17, in May 2017.

December 2016

On December 15, 2016, the IASB staff updated the Work Plan in respect of this project to indicate that the IASB expects to publish the new insurance standard, IFRS 17, in March 2017.

November 2016

On November 16, 2016, the IASB released a Staff Paper on the effective date of the forthcoming IFRS 17, Insurance Contracts, which will be January 1, 2021.

September 2016

On September 29, 2016, the FASB issued a proposed Accounting Standards Update (ASU), Targeted Improvements to the Accounting for Long-Duration Contracts.

On September 23, 2016, the IASB staff updated the Work Plan in respect of this project to indicate that the IASB expects to issue the new insurance standard in March 2017.

On September 22, 2016, the FASB Chairman stated that in the coming weeks, the FASB will issue a revised Exposure Draft for public comment on insurance contracts. The Exposure Draft will outline targeted improvements to insurance accounting and reporting for long-duration insurance contracts.

August 2016

On August 10, 2016, the IASB has provided additional information on its upcoming insurance standard related to (i) field work, (ii) the feedback statement on its Exposure Draft (ED), “Insurance Contracts”, and (iii) the effect of board redeliberations.  See the IASB news item for further details.

May 2016

On May 17, 2016, the IASB advised in a related press release that it expects to issue the new standard around the end of 2016 with an effective date no earlier than 2020.

January 2016

On January 22, 2016, the IASB updated its Work plan and a final standard is expected in Q3 2016 at the earliest.

July 2015

On July 31, 2015, the IASB updated its work plan. The new IFRS on insurance contracts is not expected until Q1 2016 at the earliest.

March 2015

On March 16, 2015, the IASB published a document that provides an overview of the general model for insurance contracts without participation features. The document also includes the tentative decisions reached during deliberations, as well as the reasoning behind those decisions.

January 2015

On January 29, 2015, the IASB staff published an update on the Insurance Contracts project, including a podcast that summarizes the IASB's tentative decisions on transition reliefs.

February 2014

At its meeting on February 19, 2014, the FASB tentatively decided to: (i) generally limit the scope of insurance accounting to insurance entities; (ii) retain the existing recognition and measurement model for short-duration contracts under U.S. GAAP and make targeted improvements to enhance the disclosures for such contracts; and (iii) make targeted improvements to the recognition, measurement, and disclosure model for long-duration contracts. These tentative decisions represent a significant change in the direction of the FASB’s Insurance Contracts project and would result in a U.S. insurance accounting model that significantly diverges from the insurance accounting model proposed by the IASB.

September 2013

On September 25, 2013 the AcSB issued an ED that corresponds to the IASB’s 2013 ED on this topic. Canadian stakeholders are encouraged to provide their comments to the AcSB by January 6, 2014.

June 2013

On June 20, 2013, the IASB published for public comment a revised ED (the 2013 ED) of proposals for the accounting for insurance contracts. At its September 20-28, 2012 meeting, the IASB had decided that a re-exposure draft should be issued. Comments to the IASB are due by October 25, 2013.

July 2010

On July 30, 2010, the IASB published for public comment an ED, Insurance Contracts, (the 2010 ED) with a request for comments by November 30, 2010.  On September 29, 2010, the AcSB issued an ED that corresponded to the IASB’s ED. The IASB will continue its redeliberations at the October 2014 meeting.

 

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