Background

In its March 2022 meeting, the Committee discussed a submission about how to identify, applying IFRS 17:B119(a), the quantity of the benefits provided under a group of immediate annuity contracts. The policyholder in each contract: (a) pays the premium upfront and has no right to cancel the contract or seek a refund; (b) receives a constant annual benefit starting from inception of the contract for as long as the policyholder survives; and (c) receives no other services under the contract (insurance coverage for survival is the only service). The request also described a group of deferred annuity contracts under which the policyholder receives a constant annual benefit starting from a specified date after the inception of the contract for as long as the policyholder survives. The request set out two methods of determining the quantity of the benefits provided in each period as: Approach A—the constant annual benefit, that is, the claim amount payable for the period; and Approach B—the present value of the current and future benefits, that is, the balance of all claim amounts expected to be payable over the duration of the contract. The staff concluded that in determining the quantity of benefits provided in each period an entity applies the constant annual benefit approach. Under that approach, the benefits are determined using the claim amount payable for the period. Most of the Committee members agreed with the staff's analysis and conclusion.

28 comment letters were received. While some supported the technical analysis and conclusion, many respondents disagreed with aspects of the Committee’s technical analysis and conclusions in the tentative agenda decision. Almost all respondents commented on the possible consequences of publishing an agenda decision less than a year before IFRS 17 is in effect.  

Staff recommendation

The staff recommended finalising the agenda decision with some suggested changes based on the comments received.

Committee discussion

Only one Committee member continued to disagree with the technical analysis that Approach A is the only acceptable approach complying with IFRS 17:B119(a). She considered that the approach does not take into account the risk of the policy holder's survival longer than expected and she disagreed that the benefit provided is the "survival in one period" only, instead, the services under an insurance contract should be considered in totality covering the insured event. However, the remainder the Committee members agreed with the technical conclusion. One Committee member pointed out that the model in IFRS 17 distinguishes "insurance risk" and "services". The services transferred in the annuity contract is the right to make a claim in a coverage period contingent on the continuous survival of the policyholders. Insurance risk transferred from the policyholder to the entity should not be included in the benefits when identifying coverage units but should be accounted for separately.

The Committee members extensively discussed their views on the timing to implement the agenda decision, if published. The staff paper set out the expectation that the agenda decision should be implemented together with the effective date of IFRS 17, i.e. annual periods beginning on or after 1 January 2023. Some Committee members had concerns whether there is sufficient time for entities to implement the change in accounting policy. Moreover, agenda decisions normally do not give an explicit implementation time. Many Committee members said judgement is required to assess what is considered "sufficient". This should be entity-specific and should not be stated explicitly. On the other hand, some Committee members expressed sympathy for preparers but thought the agenda decision is indeed helpful in giving guidance to practitioners in accounting for contracts like those in the fact pattern described.

Committee decision

13 of the 14 Committee members agreed with the technical analysis of the matter and the suggested edits made to the agenda decision. Also, the Committee member decided, by a vote of 12 out of 14, to finalise the agenda decision.