TRG members provided useful observations on a number of topics. The points raised in the TRG's discussion are likely to help insurers implement the requirements of IFRS 17 Insurance Contracts.
Accounting for investment components within an insurance contract
Under IFRS 17, insurers are required to identify investment components within an insurance contract. This raises several questions about how an insurer:
- determines whether an investment component exists;
- assesses whether the investment component is distinct – i.e. separated from the insurance component of the contract for measurement purposes; and
- determines the amount of a non-distinct investment component to be excluded from insurance revenue and insurance service expenses.
Read more | Identifying the insurance contract ►
Other topics discussed
Other topics discussed
Measuring insurance cash flows
TRG members made noteworthy observations on the following topics on measuring insurance cash flows.
- Recognising changes in inflation assumptions.
- Considering reinsurance when determining the risk adjustment for non-financial risk
- Recognising changes in fulfilment cash flows that result from changes in underlying items.
Read more | Measuring insurance cash flows ►
Eligibility for the variable fee approach
When determining whether a contract is a direct participating contract, an insurer determines the share of fair value returns allocated to the policyholder. In some arrangements, the premium for mortality cover is charged to the underlying items. A TRG member observed that when this premium is variable based on the fair value of the underlying items (rather than a fixed amount), it is important to look through that arrangement to determine whether the contract meets the eligibility criteria.
Disaggregating changes in the risk adjustment
An insurer can choose to disaggregate changes in the risk adjustment for non-financial risk between those caused by the effects of the time value of money and other financial risks and those caused by non-financial risks. The staff plans to recommend that the International Accounting Standards Board (the Board) discuss this point at its April 2019 meeting, to clarify that this choice impacts the measurement of any adjustment to the contractual service margin. A TRG member expressed concern because they believed that this choice was intended to be a presentation choice only.
At their May 2019 meeting, the Board will be informed of the TRG members’ discussion on the topics that were not already addressed at the April Board meeting. This is expected to help the Board determine whether and what action is needed to address the implementation questions discussed.
No further TRG meetings are scheduled. Future meetings will be scheduled depending on the number and the nature of submissions received.
IFRS 17 – What's in the pipeline?
The April 2019 TRG meeting follows on from the Board's recent tentative decisions to:
- defer the effective date of IFRS 17 and extend the temporary exemption from applying IFRS 9 to January 2022; and
- propose amendments to IFRS 17’s requirements in several important areas at its December 2018, and January, February and March 2019 meetings.
The Board will review all of the proposed amendments to IFRS 17, including miscellaneous minor improvements, holistically on 9 April 2019.
All of these actions are subject to the Board’s normal due process, which requires that an exposure draft be published followed by a public comment period, which is typically 120 days but could be shorter. The Board intends to publish the exposure draft at the end of June 2019.
Find out more
For KPMG's insights on transitioning to the new standard, visit IFRS-Insurance.
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We would like to acknowledge the principal authors of the April 2019 Transition to IFRS 17 articles:
Albert Chai, Alana Hudson, Hagit Keren and Lindsey Stewart.
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