Board to Give Long Lead Time to Adopt Insurance Rule

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By David R. Jones

Nov. 7 — Insurance providers would have three to four years to implement a forthcoming international financial reporting standard on insurance contracts under a proposal from the IASB staff.

The International Accounting Standards Boards staff will recommend that the board set a mandatory effective date of Jan. 1, 2021, for the pending IFRS 17: Insurance Contracts during its Nov. 14-16 meeting, a paper drafted for the meeting said.

Permitting Early Application

The proposed effective date would come into force if, as planned, IASB issues IFRS 17 in the first half of next year.

Companies could implement the standard for annual periods prior to the effective date if they also apply IFRS 9: Financial Instruments and IFRS 15: Revenue from Contracts with Customers at the same time.

Pervasive Effects

IASB typically gives entities a year to 18 months after a standard has been published to put it into effect.

“However, the Board suggested providing a relatively long implementation period of approximately three years because the proposed Standard would be pervasive for most entities that issue insurance contracts, and the task of implementing the proposals would be extensive,” the staff paper said.

This dovetails with recommendations that IASB received in response to its 2013 exposure draft on insurance contracts.

Meeting Regulatory Capital Requirements

The lengthy implementation period, staff said, would give entities time to interpret the standard’s new requirements and determine whether they need to adopt any new processes, procedures or controls.

In addition, “the long implementation period of between 3 and 4 years between the issuance of IFRS 17 and the mandatory effective date may assist entities in meeting any increased regulatory capital requirements that follow the reporting of higher liabilities,” the paper said.

Concerns About Aggregation

Setting the standard’s effective date is one of several IFRS 17 topics the board intends to address at its November meeting.

.In particular, external testing of the draft standard has highlighted stakeholder unease about proposed measures for aggregating insurance contracts.

“Of the areas tested this gave the greatest concern,” staff said.

All test participants believed that they would have to create a large number of contract groups for aggregation to meet the draft standard’s requirements, and many voiced doubts that the proposed aggregation benchmarks would produce enough useful information to justify the costs to entities.

Excessively Granular

The large number of aggregation groups that would be needed under the draft IFRS 17 would require excessively detailed, or granular, calculations on contracts, many test participants said.

“They believed that the depiction of financial position and performance of an entity may lose its relevance if the entity reports information that is much more granular than the level used for business steering and decision-making,” staff said.

Defining a Portfolio

Staff members intend to recommend that IASB keep the definition of a portfolio in draft IFRS 17 as a group of contracts subject to similar risks and managed together as a single pool.

“The forthcoming insurance contracts Standard would provide guidance that contracts within each product line, such as annuities and whole-life, would be expected to have similar risks,” a staff paper said.

As a result, staff expect that contracts from different product lines would be placed in different portfolios.

Grouping Contracts

Under another staff proposal, entities would be allowed to group only those contracts issued within the same year.

Staff also will call for permitting entities to use a weighted-average discount rate for accretion of interest, with an averaging period of up to one year.

Resolving Sweep Issues

Staff members said in a separate paper that they also will ask the board to make a single decision to approve 21 proposals for so-called sweep issues—concerns that aren’t addressed in other staff papers—in the IFRS 17 draft.

Individual sweep issues, such as provisions for combining contracts and separating embedded derivatives, will be tackled only if a board member makes a request.

Staff have asked board members in advance whether they plan to raise for discussion any individual sweep issues.

Ongoing Work

Staff will continue drafting IFRS 17 following the November board meeting.

Further, staff, before publishing a ballot draft, will ask selected external observers to conduct a “fatal-flaw review” of the revised standard to identify anything that could cause it to fail.

To contact the reporter on this story: David R. Jones in London at

To contact the editor responsible for this story: S. Ali Sartipzadeh at

For More Information

Documents prepared for the November IASB staff meeting are available at

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