The revised ED retains key features of the insurance contracts accounting model that was exposed by the IASB in 2010.  However, to address constituent’s concerns, a large number of modifications were made to the 2010 ED which the IASB sought feedback on in June 2013.  

The FRC comment: 

• That their field testing with The European Financial Reporting Advisory Group (EFRAG) and the International Accounting Standards Board (IASB) has indicated that “the ED’s insurance accounting model is difficult to implement for preparers and the results for life insurance business, in particular, are complex to understand”.  The FRC highlights that this “complexity” arises from the mandatory use of OCI, the “mirroring approach”, “whether, and to what extent, the CSM should be unlocked” and the interest accretion methodology in the ED.  They further comment that “we do not believe that that a solution for accounting for insurance contracts can be finalised before these issues are addressed”, noting that the current proposals are creating “new and additional complexity”.
• That the IASB should seek “to narrow the range of accounting practice but recognising that a one size fits all approach is not likely to prove timely or pragmatic”.  The FRC comment that a narrower range of options of accounting for insurance contracts “will constitute a significant step forward in terms of bringing consistency to the reporting of insurance contracts under IFRS”.
• That the standard on insurance contracts should focus “on reflecting the business model and the risks in that model in both the statements of financial position and performance”.
• They are concerned that “the introduction of the requirement in the 2013 ED to measure and present insurance liabilities in the Other Comprehensive Income (OCI) will have implications for current business practices and reporting by the insurance industry”.  The FRC further comment that this will “create extensive accounting mismatches where economically matched assets are classified differently” and “will lead to an asset liability measurement mismatch being hardcoded into accounting for insurance contracts”.  This increased complexity, the FRC feel, will reduce understandability of the financial statements for users. 
• Continuing the theme of accounting mismatch, the FRC comment that this will “incentivise insurers to only hold assets that can be held at FV-OCI rather than those compulsorily required to be FV-PL”.  The FRC would like the requirements for classification and measurement of insurance contracts to be consistent with those applied for financial assets.
• The FRC believe that the mirroring approach proposed in the ED will likely be “complicated to apply and understand in practice”. 
• That “the ED does not consider presentational and disclosure issues of relevance to the long term and regulated nature of much insurance businesses”.  The FRC recommend “that reconciliation between the accounting capital and the capital required under the relevant regulatory regime should be included as a separate disclosure requirement”.
• The FRC do not agree with the proposal in the ED to accrete interest on the contractual margin at locked-in rates.  Along with conceptual concerns with this proposal they comment that there will be a cost not least in “maintenance and tracking of cohorts for this purpose”.  The FRC would like the IASB to consider the costs and benefits of this proposal.  

Recognising the constituent’s concerns regarding implementation costs and transitioning systems and processes to comply with the new standard, the FRC recommend that there is “sufficient implementation time” after the final standard is published.  The FRC also recommend that early adoption should be permitted where companies feel that they are already ready.  

If the IASB does not intend to issue further EDs on insurance, the FRC comment that “it places a review draft on its website for a time period to allow implementation issues to be ironed out prior to the finalisation of the standard”.  The FRC also recommends “more field testing” once the proposals are finalised and the setting up of an “Expert Advisory Group” that can help with implementation issues. 

Please click for the final comment letter, including full responses to the questions raised in the ED, on the FRC’s website