FRS103
Overview
An insurance contract is defined in FRS 102 as “a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. Although FRS 102 includes a definition of an 'insurance contract' it does not set out the accounting required for such a contract. Instead, a separate standard FRS 103 "Insurance Contracts" issued by the FRC in March 2014 contains specific accounting requirements for 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’. FRS 102 reporters must also apply FRS 103 to other financial instruments that the entity issues with a discretionary participation feature.
FRS 103 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 allows entities to continue with their current practices for insurance contracts (subject to certain additional considerations) whilst also allowing them the flexibility to take advantage of “improvement options” (subject to legal and regulatory requirements) similar to those which are available to entities applying IFRS 4 in the UK and Republic of Ireland.
FRS 103 is accompanied by non-mandatory Implementation Guidance providing guidance on applying:
- the requirements of FRS 103;
- the requirements or principles of FRS 102 by entities with general insurance business or long-term insurance business; and
- the requirements of Schedule 3 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410)
History of FRS 103
| Date | Development | Comments |
|---|---|---|
| 20 March 2014 | FRS 103 issued | Effect for periods beginning on or after 1 January 2015. |
| 11 December 2015 | FRED 64 Draft amendments to FRS 103 Insurance Contracts issued | Comments closed on 28 February 2016 |
| 26 May 2016 | Amendments to FRS 103 Insurance Contracts - Solvency II issued | Effect for accounting periods ending on or after 1 January 2016. Early adoption is not permitted |
| 13 February 2017 | Amended version of FRS 103 issued |
FRS 103 is effective for accounting periods beginning on or after 1 January 2015. Early application is permitted. The May 2016 amendments are effective for accounting periods ending on or after 1 January 2016. Early adoption of the May 2016 amendments is not permitted. |
| 14 December 2017 | Amended by Amendments to FRS 102 – Triennial review 2017 – Incremental improvements and clarifications |
Effective for accounting periods beginning on or after 1 January 2019. Early application is permitted provided that all the amendments to FRS 103 as a result of the triennial review are applied at the same time. |
| 28 March 2018 | Revised version of FRS 103 issued |
FRS 103 is effective for accounting periods beginning on or after 1 January 2015. Early application is permitted. The May 2016 amendments are effective for accounting periods ending on or after 1 January 2016. Early adoption of the May 2016 amendments is not permitted. See above for the effective dates of the May 2016 amendments In December 2017 amendments were made to this FRS as a result of the triennial review 2017. An entity shall apply the amendments to FRS 103 as set out in the Triennial review 2017 amendments for accounting periods beginning on or after 1 January 2019. Early application is permitted provided that all the amendments t0 FRS 103 are applied at the same time. |
| December 2020 | Amendments to reflect changes in UK company law following the UK’s exit from the European Union that come into effect at the end of the Transition Period. |
The effective date for these amendments is accounting periods beginning on or after 1 January 2021. Early application is permitted in some circumstances to provide UK entities with the option to use IAS that are adopted for use within the UK after 31 December 2020, in addition to IFRS that have been adopted in the EU as at this date. This is consistent with the transitional arrangements provided in UK company law for entities preparing ‘IAS accounts’.
|
| January 2022 | Amended version of FRS 103 issued |
FRS 103 is applicable for accounting periods beginning on or after 1 January 2015. See also above for effective date of subsequent amendments to the standard. |
| December 2022 | Financial Reporting Exposure Draft (FRED) 82 ‘Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review’ issue |
Comments are requested by 30 April 2023. |
| March 2024 | Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review 2024 issued |
Effective for periods beginning on or after 1 January 2026, except for the amendments to Section 6 Transition to this FRS, which shall apply for periods beginning on or after 1 January 2024. Early application of the amendments other than those in Section 6 is permitted, provided that all those other amendments are applied at the same time. |
Scope
FRS 103 is 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 standard is also applicable to entities applying FRS 102 who issue financial instruments with a discretionary participation feature [FRS 103.1.2-FRS 103.1.3]
FRS 103 does not address other aspects of accounting by insurers, such as accounting for financial assets held by insurers and financial liabilities issued by insurers (covered in Sections 11 Basic Financial Instruments, 12 Other Financial Instruments Issues and 34 Specialised Activities of FRS 102), except in paragraph 1.8 and in the transitional provisions in paragraph 6.4. [FRS 103.1.6].
FRS 103 is not to be applied to:
- product warranties issued directly by a manufacturer, dealer or retailer (see Sections 21 Provisions and Contingencies and 23 Revenue from Contracts with Customers of FRS 102);
- employers’ assets and liabilities under employee benefit plans (see Sections 26 'Share-based Payment' and 28 'Employee Benefits' of FRS 102) and retirement benefit obligations reported by defined benefit retirement plans (see 'Section 34' of FRS 102);
- contractual rights or contractual obligations that are contingent on the future use of, or right to use, a non-financial item (for example, some licence fees, royalties, variable and other contingent lease payments and similar items), as well as a lessee’s residual value guarantee embedded in a finance lease (see Sections 18 Intangible Assets other than Goodwill, 20 Leases and 23 Revenue of FRS 102);
- financial guarantee contracts unless the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, in which case the issuer may elect to apply either Section 21 of FRS 102 or this FRS to such financial guarantee contracts. The issuer may make that election contract by contract, but the election for each contract is irrevocable;
- contingent consideration payable or receivable in a business combination (see Section 19 Business Combinations and Goodwill of FRS 102); or
- direct insurance contracts that the entity holds (ie direct insurance contracts in which the entity is the policyholder) (for which an accounting policy shall be selected in accordance with the principles of FRS 102). However, a cedant shall apply this FRS to reinsurance contracts that it holds.[FRS 103.1.7].
Effective date
FRS 103 is applicable for accounting periods beginning on or after 1 January 2015. See also above for effective date of subsequent amendments to the standard.
