IFRS 17

IFRS 17 is an International Financial Reporting Standard that was issued by the International Accounting Standards Board in May 2017.[1][2][3] It will replace IFRS 4 on accounting for insurance contracts and has an effective date of 1 January 2023.[4] In November 2018 the International Accounting Standards Board proposed to delay the effective date by one year to 1 January 2022.[5] In March 2020, the International Accounting Standards Board decided a further deferral of the effective date to 1 January 2023.[6]

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List of insurance contracts that IFRS 17 shall be applied to：

  1. Insurance and reinsurance contracts which the insurer issues
  2. Reinsurance contracts it holds;
  3. Investment contracts with discretionary participation features(DPF) the insurer issues, provided it also issues insurance contracts.[7]

Under the IFRS 17 model, insurance contract liabilities will be calculated as the present value of future insurance cash flows with a provision for risk.[8] The discount rate will reflect current interest rates.[9][10] If the present value of future cash flows would produce a gain at the time a contract is issued the model would also require a "contractual service margin" to offset the day 1 gain.[8] The contractual service margin would amortize over the life of the contract.[8] There would also be a new income statement presentation for insurance contracts, including a revised definition of revenue, and additional disclosure requirements.[8]

IFRS 17 will also have accommodations for certain specific types of contracts. Short-duration insurance contracts will be permitted to use a simplified unearned premium liability model until a claim is incurred.[8] And for some contracts in which the cash flows are linked to underlying items, the liability value will reflect that linkage.[8]

In South Korea there is concern that the use of current interest rates, rather than book yields, to discount the insurance liabilities will cause some insurers to show significantly higher insurance liabilities.[9][11] In other countries there are concerns about volatility of accounting results.[12]

IASB chairman Hans Hoogervorst regards the use of a current discount rate as one of the benefits of the new standard, stating that by doing otherwise "the devastating impact of the current low-interest-rate environment on long-term obligations is not nearly as visible in the insurance industry as it is in the defined benefit pension schemes of many companies."[10] He also stated that current discount rates would "increase comparability between insurance companies and between insurance and other parts of the financial industry, such as banks and asset management."[10] Other benefits Hoogervorst sees in the new standard are increased consistency across companies in accounting for insurance contracts and a more theoretically valid measurement of revenue.[10]

2019 Exposure Draft

On 26 June 2019, the IASB released an exposure draft proposing several amendments.[13] Comments on the amendments were open for three months, closing on 25 September 2019. In total, 123 submissions were received.[14]

References
  1. Cohn, Michael (17 May 2017). "IASB releases insurance contracts standard". Accounting Today. Retrieved 2017-05-18.
  2. White, Sara (18 May 2017). "IFRS 17 overhauls accounting for $13 trillion insurance business". CCH Daily. Retrieved 2017-05-18.
  3. "IASB finalises fundamental overhaul of insurance accounting". International Accounting Standards Board. 18 May 2017. Retrieved 2017-05-18.
  4. "The IASB has just voted on the effective date of the forthcoming IFRS 17 'Insurance Contracts', which will be 1 January 2023". Missing or empty |url= (help)
  5. "IASB to Delay IFRS 17 Implementation after Insurers' Lobbying Effort". 19 November 2018. Retrieved 2019-01-02.
  6. "IASB decides on new effective date for IFRS 17 of 1 January 2023". 17 March 2020. Retrieved 2020-03-18.
  7. "IFRS 17 - What does it mean for you?". Deloitte Ireland. Retrieved 2020-10-25.
  8. "The wait is nearly over? IFRS 17 is coming, are you prepared for it?" (PDF). PwC. Retrieved 2016-11-23.
  9. "9 Insurers Likely to Be out of Business If IFRS 17 Is in Place by 2021". The Korea Economic Daily. 8 November 2016. Retrieved 2016-11-23.
  10. "IASB commits to IFRS 17 release to combat 'accounting anarchy'". CCH Daily. Wolters Kluwer. Retrieved 2017-01-08.
  11. "New insurance standard IFRS 17 to swell Korean insurers' debt". Maeil Business News Korea. 20 November 2016. Retrieved 2016-11-23.
  12. "PwC: 'IFRS 17 dwingt verzekeraars tot minder risicovol beleggen'". Accountant. 8 November 2016. Retrieved 2016-11-23.
  13. "IFRS". www.ifrs.org. Retrieved 26 June 2019.
  14. "Exposure Draft and comment letters—Amendments to IFRS 17". www.ifrs.org. IASB. Retrieved 19 February 2020.
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