In July 2015, the IASB tentatively decided to amend IFRS 4 Insurance Contracts to address the consequences of different effective dates of IFRS 9 and the new insurance contracts standard. The approach developed has become known as the "overlay approach" and involves excluding from profit or loss and recognising in other comprehensive income the difference between the amounts that would be recognised in profit or loss in accordance with IFRS 9 Financial Instruments and the amounts recognised in profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement.

AOSSG members are not fully convinced that this approach is the best to take. They believe this solution would not cater well for insurers that are a part of a larger finance entity, and would not cater for insurance activities that are a part of a group that has already applied IFRS 9. They also fear that it could complicate the insurers’ presentation of performance reporting and may escalate the view that the amounts flowing through OCI would not be a source of useful information.

In its letter, the AOSSG therefore suggests that aligning the effective date of IFRS 9 and the forthcoming standards on insurance contracts might be a better solution. Views on how this might best be implemented differ between AOSSG members. Some suggest an option for insurers to continue to apply IAS 39, some believe local regulators should determine the scope of such an option, some believe the option to apply IFRS 9 twice would be the best way forward.

The AOSSG letter is well timed. At its upcoming meeting next week, the IASB will discuss a "deferral approach" in addition to the "overlay approach" that could lead to a potential IFRS 9 deferral.

Please click to access the full letter on the AOSSG website.