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Amendments to IFRS 17

Date recorded:

Cover note (Agenda Paper 2)

In June 2019 the Board issued ED/2019/4 Amendments to IFRS 17.  The ED was open for comments until September 2019.

In this session, the staff summarised the feedback from the comment letters on the ten questions in the ED and summarise comments on areas for which amendments to IFRS 17 were considered but not proposed. The staff set out a recommended plan for redeliberations.

Comment letter summary—overview and introduction (Agenda Paper 2A)

The IASB received 122 comment letters. The agenda paper provides an analysis of geographical region and type of respondent.

Comment letter summary—feedback on the questions in the Exposure Draft (Agenda Paper 2B)

Please see our IFRS in Focus for details on the proposals and the 10 specific questions. This summary focuses on the feedback received. The staff think that the Board should consider all of the suggestions presented below:

Question 1(a)—Scope exclusion for credit cards

Response: General agreement  

Main suggestions:

  • Extend the scope exclusion to exclude other contracts typically issued by banks that might meet the definition of an insurance contract.
  • Clarify the requirement to account for some credit card contracts at fair value through profit or loss.
  • Clarify whether those credit cards are now in IFRS 9 in their entirety.

Question 1(b)—Scope exclusion for loans

Response: General agreement

Question 2—Expected recovery of insurance acquisition cash flows

Response: Most, who commented, agreed 

Main suggestions:

  • Include guidance on allocating insurance acquisition cash flows to expected renewals and determining any impairment loss.
  • Clarify the unit of account used to recognise an asset for insurance acquisition cash flows and to assess the recoverability of the asset.
  • Clarify the interaction between the wording of the proposed amendment and the requirements in IFRS 17.
  • Provide transition relief.
  • Simplify the impairment requirements.
  • Introduce annual impairment testing.
  • Improve comparability between entities, in the light of the significant judgement that would be involved in allocating insurance acquisition cash flows to expected renewals.
  • Remove requirement to apply this amendment (i.e. make it elective).
  • Refine disclosure requirements to protect commercially sensitive information.
  • Clarify presentation.

Question 3(a)—Contractual service margin attributable to investment services | Coverage units for insurance contracts without direct participation features

Response: General agreement to identify coverage units considering the quantity of benefits and expected period of investment-return service, if any, in addition to insurance coverage.

Main suggestions:

  • Clarify criteria for when insurance contracts without direct participation features may provide an investment-return service.
  • Reduce complexity introduced by the proposed amendment.
  • Clarify the wording in the ED (for example, the meaning of positive investment return).
  • Introduce application guidance, illustrative examples or educational materials on determining coverage units for contracts that provide multiple services and on distinguishing between investment-return services and investment-related services.

Question 3(b)—Contractual service margin attributable to investment services | Coverage units for insurance contracts with direct participation features

Response: General support for the clarification

Question 3(c)—Contractual service margin attributable to investment services

Response: General support for additional disclosures

Main suggestions:

  • Consider removing the requirement to provide quantitative information as it is costly and might reveal commercially sensitive information.

Question 4—Reinsurance contracts held—recovery of losses

Response: General support

Main suggestions:

  • Refine amendment to achieve the Board’s objective of making it easier for entities to explain their results to investors.
  • Increase population of reinsurance contracts held to which the amendment would apply.
  • Prohibit recognition of income on a reinsurance contract held that is in a net cost position.

Question 5—Presentation in the statement of financial position

Response: General support  to amend the presentation of insurance contracts (reducing operational complexity and implementation costs).

Question 6—Applicability of the risk mitigation option

Response: General support to extend the risk mitigation option to circumstances when an entity uses reinsurance contracts held to mitigate financial risk arising from insurance contracts with direct participation features (reducing accounting mismatches).

Main suggestions:

  • Permit an entity to apply the risk mitigation option when the entity uses financial instruments measured at fair value through profit or loss other than derivatives (for example, bonds) to mitigate financial risk arising from insurance contracts with direct participation features.

Question 7(a)—Effective date of IFRS 17

Response: General supported  to defer the effective date.

Main suggestions:

  • Defer for two years. However, some opposed this suggestion as it would further increase implementation costs or further delay improvements in existing insurance accounting practices that are urgently needed.

Question 7(b)—IFRS 9 temporary exemption in IFRS 4

Response: General support to further delay the implementation of IFRS 9 for some insurers to continue to enable them to first apply IFRS 17 and IFRS 9 at the same time.

Main suggestions:

  • Introduce disclosure requirements on financial asset ratings that remove information gaps between insurers and other financial entities until insurers apply IFRS 9.

Question 8(a)—Transition reliefs for business combinations

Response: General support to amend the transition requirements.

Main suggestions:

  • Clarify that the proposed amendment would apply to contracts acquired in a transfer of insurance contracts that do not form a business (for example, a portfolio transfer), in addition to contracts acquired in a business combination within the scope of IFRS 3. The staff agrees and suggests redrafting.
  • Permit in all circumstances (that is, before and after the transition date) an entity to classify as a liability for incurred claims a liability for settlement of claims incurred before an insurance contract was acquired.

Question 8(b)–(c)—Transition reliefs for the risk mitigation option

Response: General support to amend the transition requirements.

Main suggestions:

  • Permit an entity to apply the risk mitigation option retrospectively, either in addition to, or instead of, the proposed amendments.
  • Permit an ‘all or nothing’ approach to applying the risk mitigation option retrospectively.

Question 9—Minor amendments

Response: General support for the proposed minor amendments.

Main suggestions:

  • Reconsider editorial correction to IFRS 17:B107 as it would be a major change to the requirements in IFRS 17 that would disrupt implementation.
  • Reconsider amendment to IFRS 17:B128 of IFRS 17—the proposed requirement to present all changes in underlying items as insurance finance income or expenses would distort the presentation of the different sources of profits from insurance contracts.
  • Reconsider amendment to the definition of an investment component—clarify whether policy loans meet the definition of an investment component and define a premium refund in IFRS 17 to make it easier to distinguish repayments of investment components from premium refunds.
  • Propose amendment to IFRS 17:28 also to IFRS 17:22
  • Clarify that the amendment to IFRS 9:2 does not requiring entities to account for financial guarantee contracts held applying IFRS 9.
  • Specify that the proposed amendment to IFRS 17:B124 refers to experience adjustments for premium receipts that relate to current or past service.
  • Reconsider amendment to IFRS 17:B96(c) of IFRS 17—the proposed amendment would add operational complexity because it would require segregation of any unexpected investment component payments into a part which is due to a change in financial variables and a part which is due to a change in non-financial variables and does not clearly state whether an entity should present such changes as part of the insurance service result or insurance finance income or expenses.
  • clarify in the amendment to IFRS 17:11 that an investment contract with discretionary participation features may contain a distinct investment component that could be separated and measured applying IFRS 9.
  • Reconsider reference to locked-in discount rates in amendment to IFRS 17:B96(d)
  • Amend IFRS 17 to extend the exception to the principle in IFRS 3 (i.e. an acquirer classifies assets acquired and liabilities assumed based on the terms and conditions as they exist at the acquisition date) to contracts acquired through a business combination that occurred after the date of initial application of IFRS 17.
  • Clarify whether the amendment to IFRS 17:B123 would apply to policy loans
  • Clarify the proposed definitions of a liability for remaining coverage and a liability for incurred claims.

Question 10—Terminology

Response: Most respondents, who commented, said that it would be helpful to amend the terms in IFRS 17 to reflect the proposed addition to Appendix A of IFRS 17 of the defined term ‘insurance contract services’.

Main suggestions:

  • Consider that widespread changes throughout the Standard might cause unintended consequences and might disrupt implementation under way
  • The amendment in Question 3 might have implications on the implementation of other requirements of IFRS 17, as for some insurance contracts providing investment services this amendment would amend the coverage period compared to IFRS 17 as originally issued.

Comment letter summary—other comments (Agenda Paper 2C)

This paper summarises comments received on the ED other than those in response to the questions in the ED. A detailed summary is only presented when the staff think the Board should consider the issues when redeliberating the amendments.

Level of aggregation

Some respondents suggested the Board require an exception to the annual cohort requirement for insurance contracts with intergenerational sharing of risks between policyholders. A small number of those respondents suggested that the Board could require additional disclosures for the insurance contracts to which the exception would apply.

Business combinations—contracts acquired in their settlement period

Many respondents who commented on the Board’s decision to retain, unchanged, the requirement that an entity classify a liability for settlement of claims as a liability for remaining coverage if the entity acquired the insurance contract during the settlement period of the claims suggested the Board amend IFRS 17 to permit in all circumstances an entity to classify as a liability for incurred claims a liability for settlement of claims incurred before an insurance contract was acquired.

Interim financial statements

Respondents expressed concerns about the application of the requirement as follows:

  • The requirement in IFRS 17 results in a more significant practical burden than the burden it is supposed to alleviate, particularly for entities in a consolidated group.
  • The requirement in IFRS 17 results in a fundamental change to existing insurance accounting practices for entities that currently use a year‑to‑date basis in interim financial statements.

Additional specific transition modifications and reliefs for entities applying the modified retrospective approach

The Board should consider, for example, reliefs from the retrospective application of the annual cohort requirement and the requirement for interim financial statements) as well as transition reliefs within the full retrospective approach.

New concerns and implementation questions

Some respondents also commented on areas of IFRS 17 that the Board did not consider when developing the ED. Recurrent topics mentioned by respondents include:

  • The accounting treatment of policyholder taxes applying IFRS 17
  • Application of the requirements in IFRS 17:B113(b) to insurance contracts with cash flows that do not vary based on the returns on underlying items to which the variable fee approach applies
  • Contracts that change in nature over time (for example, an insurance contract with direct participation features may become an annuity after the policyholder exercises an option)

The staff will analyse the new concerns and implementation questions and report to the Board at a future meeting so that the Board can decide what, if any, action is needed to address them.

Items raised but not recommended for redeliberation:

  • Cash flows in the boundary of a reinsurance contract held
  • Subjectivity in the determination of discount rates and the risk adjustment for non-financial risk
  • Risk adjustment for non-financial risk in a consolidated group of entities
  • Discount rate used to determine adjustments to the contractual service margin
  • Other comprehensive income option for insurance finance income or expenses
  • Business combinations | Classification of contracts acquired
  • Scope of the variable fee approach | Reinsurance contracts issued
  • Mutual entities issuing insurance contracts [please note that the recommendation not to discuss mutual entities specifically as a type of entity does not mean the Board is not discussing ‘mutualisation’ as a topic in level of aggregation, which was a wide concern].

Redeliberation plan (Agenda Paper 2D)

The staff asks the Board whether they agree with the proposed amendments the staff have identified that the Board can confirm at a future meeting and with the topics the staff have identified for which the Board should consider further the feedback from respondents. They will also ask whether they agree with the topics the staff have identified as not needing further consideration.

The staff plan to present papers to the Board at future meetings in the period from December 2019 to February 2020.

Board discussion and decisions

The Board discussed all agenda papers together. The Board did not discuss each of the topics individually. Rather, the staff grouped the topics together into three groups for the Board discussion and voting.

Group 1—Proposed amendments that could be confirmed without further discussion because of general support in the comment letters (listed in Agenda Paper 2D paragraph 7).

One Board member found it helpful that the staff signal here that these amendments will likely come, so implementation can get underway. On transition reliefs for the risk mitigation option—application from the transition date and the option to apply the fair value approach, one Board member suggested not to split Question 8(b)–(c) between Group 1, Group 2 and Group 3 and but to conclude once the Board has the full picture from the discussions.

All Board members agreed that the amendments on this list should be confirmed without further discussion.

Group 2—Proposed amendments that warranted further discussion as the feedback in the comment letters was constructive and provided at least a "little element" of new information (listed in Agenda Paper 2D paragraph 9).

On transition—the prohibition from applying the risk mitigation option retrospectively, the Vice Chair observed that there were not many responses, so it would be difficult to identify the population. Respondents did not seem to be concerned about the risk of hindsight.

On level of aggregation—annual cohorts for insurance contracts with intergenerational sharing of risks between policyholders; business combinations—contracts acquired in their settlement period; and interim financial statements the Board will take a targeted look based on the new information. This does not necessarily mean amendments would be proposed on those items. On business combinations one Board member warned that this had been looked at from a transition point of view and it might be difficult to expand this discussion to ongoing business combinations.

On the proposed amendment for contractual service margin attributable to investment services—coverage units for insurance contracts without direct participation features, disclosures and terminology, one Board member observed that the Board should consider drawing the line differently, but there will always be items that will not be captured and it is not possible to satisfy all respondents.

On the proposed editorial correction to IFRS 17:B107, a Board member asked whether this came out of TRG discussions. The staff negated that and confirmed that before exposing, they had seen it as merely a drafting issue, but comments have revealed that there is a broader issue.

One Board member asked why the deferral of the effective date is on this list, while almost all respondents supported a deferral to 1 January 2022. Another Board member replied that there were enough respondents who preferred 1 January 2023 to warrant the discussion.

All Board members agreed that the items on the list warranted further Board discussion.

Group 3—Topics that did not warrant further discussion as either there was support in the comment letters for the Board not picking them up or as the feedback in the comment letters did not provide any new information (listed in Agenda Paper 2D paragraph 10).

One Board member disagreed with the list and thinks the following items warrant further discussion:

  • Scope of the variable fee approach—reinsurance contracts held and reinsurance contracts issued
  • Cash flows in the boundary of a reinsurance contract held
  • Business combinations—classification of contracts acquired
  • Transition—general optionality and flexibility in the modified retrospective approach
  • Transition—reliefs in the full retrospective approach

The first two issues were raised because of accounting mismatches, and the Board has an opportunity now to resolve them. The third issue is a cost-benefit issue that is worthwhile discussing. The transition items should all be discussed together with those in Group 1 and Group 2.

Another Board member was comfortable with the list as all of them had a good rationale as to why they should not be addressed. This was echoed by another Board member with the caveat that if discussions of Group 2 topics reveal that a Group 3 topic should be addressed as well, the Board should not be restricted by its decision today not to address it.

13 of the 14 Board members agreed that items on this list should be dismissed without further discussion.

To see how the Board’s votes translate into the staff's table of proposed further actions, please click here (table at the bottom of the page).

Correction list for hyphenation

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