IASB proposes delaying insurance standard for a year

The International Accounting Standards Board is proposing some amendments to its insurance contracts standard, including a one-year delay in the effective date, after hearing complaints from insurers.

The IASB issued International Financial Reporting Standard 17 in May 2017, to address the inadequacies for accounting for insurance contracts around the world. The IASB had initially worked on converging the international standards with the Financial Accounting Standards Board’s standards under U.S. GAAP, which have traditionally been much further developed. However, the two standard-setting boards eventually decided to go their separate ways, and FASB instead updated its standards last year only for so-called “long-duration” insurance contracts, such as for life insurance policies, disability income, long-term care and annuities.

The IASB received some pushback, though, from its constituents in the insurance industry, and on Wednesday it proposed some amendments to its standard, while deferring the effective date from 2021 to 2022. The proposed amendments would also exclude some banking products that IFRS 17 would define as insurance contracts from the scope of the new standard. They would also require the allocation of some acquisition costs to expected future renewals, resulting in fewer loss-making contracts and more assets for acquisition costs.

IASB chairman Hans Hoogervorst speaking at an IFRS Foundation conference in Frankfurt, Germany

Other proposed changes aim to better align profit recognition with the provision of investment services for some contracts. In terms of risk mitigation, the proposed amendments would reduce accounting mismatches by extending the risk mitigation option so that it can be used when a company uses reinsurance contracts held to mitigate financial risks. Another way the changes aim to reduce accounting mismatches is with reinsurance contracts, by requiring the immediate recognition of recovery of losses on underlying loss-making contracts for proportionate reinsurance contracts.

There would also be changes in presentation, requiring companies to present their insurance contract assets and liabilities at a less granular level -- that is, at a portfolio level instead of a group level. There would also be some extra transition options to the new standard, adding three options for companies to use when applying the standard for the first time.

“Moving to IFRS 17 is a big task and this proposed package of targeted amendments will help insurers in their ongoing implementation of the new standard,” said IASB Chairman Hans Hoogervorst in a statement.

The IASB is asking for comments on the proposed amendments by Sept. 25, 2019. A copy of the full set of the exposure draft amendments to IFRS 17 is here. There’s also a Snapshot document explaining the proposed amendments and the background for them in more detail. The IASB also plans to organize stakeholder events around the world as part of its consultation on the standard. Further details on the events are available here.

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