IFRS®17 amendments – Redeliberations begin

The Board kicks off redeliberations by discussing two topics of wide application

12 December 2019

Highlights

Reinsurance on onerous contracts amendment extended to all reinsurance held
Expected recovery of insurance acquisition cash flows confirmed
Effective date to be discussed later in redeliberation process
Next steps

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Standard setter extends reinsurance relief on initial recognition of onerous contracts to any type of reinsurance held

We now have more clarity over two further proposed amendments to the new insurance standard, IFRS 17 Insurance Contracts.

Reinsurance contracts held – recovery of losses on initial recognition of onerous contracts. This amendment has been expanded to any type of reinsurance contracts held. Read our article to find out more.
Expected recovery of insurance acquisition cash flows. This amendment has been confirmed as proposed in the exposure draft (ED), with transition considerations to be discussed at a future meeting.

At its December meeting, the International Accounting Standards Board (the Board) progressed its redeliberation plan by confirming these two topics, as well as finalising, as drafted in the ED, the six amendments proposed at its November meeting which did not require substantive redeliberation.

For clarity, the Board highlighted a few specific areas related to the confirmed amendments on the expected recovery of insurance acquisition cash flows.

When allocating insurance acquisition cash flows on a systematic and rational basis, the underlying assumptions should be updated every reporting period, but not the methodology itself.
The Board will not prescribe how to apply a ‘systematic and rational’ basis, but a method based on expected recoveries would align with the required impairment test for the asset for insurance acquisition cash flows.
Two impairment tests will be required: one at group level and one specific to insurance acquisition cash flows allocated to expected contract renewals.

Eleven topics now remain for the Board to address over the next two months.

Amendments confirmed	Remaining topics for further consideration by the Board
Scope exclusion for loans Contractual service margin attributable to investment services – coverage units for insurance contracts with direct participation features Presentation in the statement of financial position – portfolio instead of group level Applicability of the risk mitigation option – reinsurance contracts held Transition reliefs for business combinations Transition reliefs for the risk mitigation option – application from the transition date and the option to apply the fair value approach Expected recovery of insurance acquisition cash flows Reinsurance contracts held – recovery of losses	Proposed scope exclusion for credit cards Proposed amendment for contractual service margin attributable to investment services – coverage units for insurance contracts without direct participation features, disclosures and terminology Applicability of the risk mitigation option – non-derivative financial instruments at fair value through profit or loss Proposed effective date of IFRS 17 Proposed extension of the IFRS 9 Financial Instruments temporary exemption in IFRS 4 Insurance Contracts Transition – the prohibition from applying the risk mitigation option retrospectively Proposed minor amendments Level of aggregation – annual cohorts for insurance contracts with intergenerational sharing of risks between policyholders Business combinations – contracts acquired in their settlement period Interim financial statements Additional specific transition modifications and reliefs
New concerns that may be addressed by the Board
Accounting treatment of policyholder taxes Application of the requirements in IFRS 17.B113(b) for insurance contracts to which the variable fee approach applies to cash flows that do not vary based on the returns on underlying items Contracts that change in nature over time

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As we noted last month, it is important that preparers move forward swiftly in the areas that are being confirmed by the Board, particularly those amendments that require systems developments and revised processes, such as insurance acquisition cash flows and the allocation of the CSM for contracts with direct participation features.

•Scope exclusion for loans

• Contractual service margin attributable to investment services – coverage units for insurance contracts with direct participation features

• Presentation in the statement of financial position – portfolio instead of group level

• Applicability of the risk mitigation option – reinsurance contracts held

• Transition reliefs for business combinations

• Transition reliefs for the risk mitigation option – application from the transition date and the option to apply the fair value approach

• Expected recovery of insurance acquisition cash flows

• Reinsurance contracts held – recovery of losses

As we noted last month, it is important that preparers move forward swiftly in the areas that are being confirmed by the Board, particularly those amendments that require systems developments and revised processes, such as insurance acquisition cash flows and the allocation of the CSM for contracts with direct participation features.

There was significant progress made during the December meeting, with clarity provided to the insurance industry in eight areas. It is particularly exciting to see the reinsurance deliberations come to a close, so preparers can now move forward in this area.

Mary Trussell
KPMG’s Global Lead, Insurance Accounting Change

Next steps

The proposed amendments to be confirmed and topics to be considered further are expected to be discussed by the Board in its next two meetings – i.e. up to February 2020.

The effective date and extension of the IFRS 9 temporary exemption in IFRS 4 is expected to be discussed closer to the end of the redeliberations – i.e. in February 2020.

The Board’s objective remains to issue the final amendments to IFRS 17 in mid-2020.

You can read our coverage of the Board’s proposed amendments and the Transition Resource Group (TRG) for Insurance Contracts discussions in our online magazine Insurance – Transition to IFRS 17.

Please watch this space for further updates and speak to your usual KPMG contact to find out more about the Board’s deliberations.

Find out more

Visit home.Kpmg/ifrs17 to read all of our insights on the new insurance contracts standard. Also, our insights on insurers’ progress with IFRS 17 and IFRS 9 implementation can be found on our In it to win it web page.

Mary H. Trussell

KPMG International
Joachim Kölschbach

KPMG in Spain

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