Background

In its March 2023 meeting, the IFRS IC discussed a submission about how an entity that issues insurance contracts (insurer) accounts for premiums receivable from an intermediary. The submission asked, when the policyholder pays the premiums to the intermediary, whether the insurer is required to recognise the premiums receivable from an intermediary as a separate financial asset under IFRS 9 and remove these premiums from the measurement of the group of insurance contracts under IFRS 17. The IFRS IC concluded that there is an accounting policy choice that premiums receivables remain in the measurement of a group of insurance contracts under IFRS 17 until recovered or settled in cash (View 1) or it is removed from the measurement of the group of insurance contracts and is recognised as a separate financial asset under IFRS 9 (View 2). 16 comment letters were received and most of the respondents agreed (or did not disagree) with the technical analysis.

Staff analysis

15 respondents agreed (or did not disagree) with the technical analysis in the tentative agenda decision and agreed not recommending that the IASB should consider adding a standard-setting project to its work plan. They agreed that IFRS 17 is the starting point for an insurer to consider how to account for its right to receive premiums under an insurance contract. In applying IFRS 17, premiums from a policyholder collected through an intermediary is included in the measurement of a group of insurance contracts. However, IFRS 17 is silent on whether future cash flows within the boundary of an insurance contract are removed from the measurement of a group of insurance contracts only when these cash flows are recovered or settled in cash. Therefore, an insurer can apply either View 1 (IFRS 17) or View 2 (IFRS 9) to the receivables. Only one respondent disagreed and said View 2 is the only appropriate treatment.

The staff continued to be of the view that IFRS Accounting Standards do not prohibit an insurer from either applying IFRS 17 or IFRS 9 and a standard-setting project would not be cost-efficient. In addition, the matter would not be sufficiently narrow in scope that the IASB can address it in an efficient manner. Meanwhile, considering the feedback, the staff suggests that the agenda decision be amended to (i) focus on the key reasons of the technical analysis; (ii) clarify that in accounting for premiums receivable from an intermediary, when payment by the policyholder discharges the policyholder’s obligation under the insurance contract, an insurer develops and applies an accounting policy that determines when cash flows are removed; and (iii) include a reference to the requirements in IAS 8 that an accounting policy results in information that is relevant and reliable and is applied consistently for all similar transactions.

Some respondents asked whether such technical analysis would apply equally to other fact patterns, for example, claims payables to an intermediary. In view of the fact that the Due Process Handbook says that explanatory material in an agenda decision explains how the principles and requirements in IFRS Accounting Standards apply to fact pattern submitted only, the agenda decision should not opine on how the technical analysis and conclusion applies to other fact patterns. Insurers may apply the additional insights from the agenda decision to evaluate its accounting policies on other transactions.

Staff recommendation

The staff recommended finalising the agenda decision with changes to the tentative agenda decision as suggested above.

IFRS IC discussion

While some IFRS IC members still preferred one particular view, they agreed that allowing an accounting policy choice is the best approach for this matter given there are no clear requirements in IFRS Accounting Standards. One IFRS IC member commented that the approach taken in the agenda decision is different from a previous agenda decision that clearly laid out the interaction between IFRS 16 and IFRS 9. No such analysis was presented in the current agenda decision with regard to the linkage and the flow from insurance risk to credit risk. The staff explained that the paper lays out the analysis starting with IFRS 17 and emphasised at which point an entity selects an accounting policy (i.e. to determine when cash flows are removed from the measurement of a group of insurance contracts, and thereby moving from IFRS 17 to IFRS 9). One IFRS IC member considered that the existing drafting with the whole paragraph on IAS 8 is boilerplate information and suggested deleting that paragraph while explicitly stating that the insurer applies IAS 8 in determining the accounting policy for the specific area for which an entity makes a choice. The staff agreed with this suggestion as well as other editorial suggestions by IFRS IC members to make the description of the fact pattern more precise.

IFRS IC decision

The IFRS IC, by a unanimous vote, decided to finalise the agenda decision with some edits suggested during the meeting.