Insurance contracts

Date recorded:

Agenda Paper summaries

There are three agenda papers prepared for the February Board meeting where the findings from the external editorial review of a draft of IFRS 17 Insurance Contracts (draft IFRS 17) will be addressed.

Paper 2A considers whether to amend the requirements in draft IFRS 17 on changes to the carrying amount of the contractual service margin (CSM). Paper 2B discusses a narrow exemption to the requirements to group insurance contracts when a regulation or law constrains an entity from fully pricing the insurance risks transferred based on the characteristics of each policyholder. Paper 2C summarises the findings of the external review and identifies other minor issues together with the Staff’s proposed response.

Changes to the CSM (2A)

The Staff recommends that for contracts measured under the general model (i) all changes in estimates of the present value of future cash flows arising from non-financial risks (other than those arising from incurred claims), including those that are directly caused by experience adjustments, are adjusted against the CSM, and (ii) the amount of the CSM recognised in profit or loss is determined by allocating the carrying amount of the CSM to coverage units after all other adjustments have been made to the CSM at the start of the period (this is the only recommendation that would not be a change from draft IFRS 17). The Staff further recommends that the definition of an experience adjustment should be amended to exclude any investment components from experience adjustments arising from differences between (i) expected incurred claims and expenses and (ii) actual incurred claims and expenses. The final Staff recommendation is that for contracts measured under the variable fee approach, all changes in estimates of the present value of future cash flows  that do not relate to the underlying items should adjust the CSM (other than those relating to incurred claims).

Narrow exemption for the grouping of regulatory-affected pricing of insurance contracts (2B)

If an exemption for grouping contracts is provided, the Staff recommends that it should apply only to contracts that would fall into different groups because law or regulation constrains the entity’s practical ability to set a different price or a different level of benefits for policyholders with different characteristics.

Responding to the external editorial review (2C)

There are 14 issues raised by both the Board members and the external reviewers that have resulted in the Staff proposing a change in the text of draft IFRS 17, and 15 clarifications to the text of draft IFRS 17 that the Staff proposes in the light of comments received. The Staff plans to ask a general question as to whether the Board agrees with the Staff proposals with individual issues being discussed on request only. The paper includes nine further items for which the Staff proposes to take no action because the Board has already considered and decided on these issues.

Next steps

The Staff will continue with the drafting process, reflecting the decisions made at this meeting.

The Staff expects to issue IFRS 17 in the first half of 2017.

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