FRC issues draft new standard for Insurance Contracts

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29 Jul, 2013

The Financial Reporting Council (FRC) has today issued Financial Reporting Exposure Draft (FRED) 49: ‘Draft FRS 103 Insurance Contracts’ proposing a new Financial Reporting Standard for Insurance Contracts which will be applicable for accounting periods beginning on or after 1 January 2015. The FRC are inviting comments on the Exposure Draft (ED) and the accompanying Implementation Guidance by 31 October 2013.

The new standard (link to FRC website) will be applicable to entities that have insurance contracts (including reinsurance contracts) and are applying FRS 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’.  The new standard will also be applicable to entities applying FRS 102 who issue financial instruments with a discretionary participation feature. 

The ED, setting out the draft Financial Reporting standard (FRS) consolidates existing guidance included within the International Accounting Standard Board’s (IASB’s) IFRS 4 Insurance Contracts, the existing requirements of FRS 27 Life Assurance and elements of the Association of British Insurers’ Statement of Recommended Practice on Accounting for Insurance Business (ABI SORP).  It will allow entities to continue with their current practices for Insurance contracts whilst also allowing them the flexibility to take advantage of “improvement options” similar to those which are available to entities applying IFRS 4 in the UK and Republic of Ireland. 

FRED 49 will also require disclosure that: 

identifies and explains the amounts in an insurer’s financial statements arising from the insurance contracts (including reinsurance contracts) it issues and reinsurance contracts that it holds;

relate to the financial strength of entities carrying on long-term insurance business; and

helps users of those financial statements understand the amount 

The FRC expects the draft FRS to have a “limited life” stating: 

The FRC expects to revise the standard once the IASB has issued its updated standard on insurance contracts and changes in the regulatory regime for insurers have been finalised  

The ED is the latest addition to financial reporting standards in the UK and Republic of Ireland and follows the publishing of FRS 100 ‘Application of Financial Reporting Requirements’, FRS 101 ‘Reduced Disclosure Framework’ (both published in November 2012) and FRS 102 (published in March 2013) – the three main standards that were introduced as a package to replace UK GAAP. 

The FRC invites comments in writing by 31 October 2013. 

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