IFRS 17 and AASB 17

AASB 17 is a new accounting standard for insurance business.  It is based on, and almost identical to the international standard, IFRS 17, issued by the International Accounting Standards Board (IASB).

It becomes effective for accounting periods starting 1 January 2021 or later, though it may be adopted early.

The new standard is quite different in many detailed ways from the current accounting standards for life insurance, general insurance and health insurance in Australia. The standard is complex and there are many challenges to fully understand its implications and to be able to provide definitive guidance.

Information Note (IN)

In late 2016, the Actuaries Institute formed a task force to help the profession prepare for the new standard. The taskforce decided to produce an Information Note (IN) as its primary piece of work.

The Task Force completed Version 1.2 of the AASB 17: Insurance Contracts Information Note (IN) in December 2018. This is an update of Version 1.1 of the IN, which was released in July 2018. This in turn followed Version 1.0, a draft for discussion, in March 2018. 

A number of refinements and clarifications have been made in Version 1.2, following feedback, questions and improved understanding, with the main changes being as follows:

  • A Preface has been added.This provides more context and amongst other matters explains how areas of uncertainty are being addressed.

To provide ready access to information about areas of uncertainty, a new Section 15 (Interpretation Uncertainties) has been added.

  • Updates have been made where previously uncertain areas have been clarified (e.g. through the IASB September TRG); and
  • Various editorial clarifications have been made.

In February 2019, Addendum A to Version 1.2 was published by the Task Force.  This deals with changes to IFRS 17 tentatively agreed by the IASB in January and February 2019.

Here is Version 1.2 of the IN.

Here is Addendum A to Version 1.2 of the IN (to be read in conjunction with Version 1.2)

Here is Version 1.1 of the IN.

Here is a copy of Version 1.2 showing the more substantive changes from Version 1.1

The IASB is working through various sources of feedback and is providing clarification to IFRS 17 over time, and in late 2018 and early 2019 also tentatively agreed to some changes (addressed in Version a.2 and Addendum A).

The Task Force intends to update the IN (every 3-6 months or so) to reflect this, together with other improvements considered necessary as accounting interpretations are clarified and members gain more experience with the standard.

The International Actuarial Association is preparing an International Actuarial Note (IAN) and it recently released an exposure draft and is seeking comment – see here.  Members of the Australian TF have contributed significantly to the development of the IAN. Where appropriate the IN will be adapted in future to be consistent with the IAN.

Amendments by IASB in March 2019

After the Addendum to Version 1.2 was produced (see above), the IASB Board met on 14 March 2019 to consider possible amendments to IFRS 17 Insurance Contracts relating to outstanding matters (see Addendum for details).  The outcomes were as follows:

Level of aggregation (Agenda Paper 2A–2C)

The Board tentatively decided to retain the IFRS 17 requirements on the level of aggregation unchanged.

Credit cards that provide insurance coverage (Agenda Paper 2D)

The Board tentatively decided to amend IFRS 17 to exclude from its scope credit card contracts that provide insurance coverage for which the entity does not reflect an assessment of the insurance risk associated with an individual customer in setting the price of the contract with that customer.

Transition requirements—Risk mitigation option (Agenda paper 2E)

The Board tentatively decided to amend the requirements of IFRS 17 to:

  1. permit an entity to apply the risk mitigation option prospectively from the IFRS 17 transition date, provided that the entity designates its risk mitigation relationships to apply the risk mitigation option no later than the IFRS 17 transition date; and
  2. permit an entity that can apply IFRS 17 retrospectively to a group of insurance contracts with direct participating features to use the fair value transition approach for the group, if and only if it:
    1. chooses to apply the risk mitigation option to the group prospectively from the transition date; and
    2. has used derivatives or reinsurance contracts held to mitigate financial risk arising from the group before the transition date.

Transition requirements—Loans that transfer significant insurance risk (Agenda paper 2F)

The Board tentatively decided to retain:

  1. the transition requirements in IFRS 17 for loans that transfer significant insurance risk, if an entity elects to apply the requirements in IFRS 17 to a portfolio of such loans; and
  2. the transition requirements in IFRS 9 Financial Instruments for loans that transfer significant insurance risk, if an entity:
    1. elects to apply the requirements in IFRS 9 to a portfolio of such loans; and
    2. initially applies IFRS 17 and IFRS 9 at the same time.

The Board tentatively decided to amend the transition requirements in IFRS 9 for loans that transfer significant insurance risk, if an entity:

  1. elects to apply the requirements in IFRS 9 to a portfolio of such loans; and
  2. has applied IFRS 9 before it initially applies IFRS 17

In such circumstances, the Board tentatively decided to amend the transition requirements in IFRS 9:

  1. to require an entity to apply the transition requirements in IFRS 9 that are necessary for applying the proposed amendments.
  2. to permit an entity to newly designate, and to require an entity to revoke its previous designations of, a financial liability under the fair value option at the date the entity first applies the proposed amendments, to the extent that a new accounting mismatch is created, or a previous accounting mismatch no longer exists as a result of applying the proposed amendments.
  3. not to require an entity to restate prior periods to reflect the application of the proposed amendments but to permit an entity to restate prior periods under particular conditions.
  4. to exempt an entity from presenting the quantitative information required by paragraph 28(f) of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
  5. to require an entity to disclose specific information in addition to the disclosures that any other IFRS Standard would require. The specific information required is:
    1. the previous classification, including measurement category when applicable, and carrying amount of the loans immediately before applying the proposed amendments;
    2. the new measurement category and carrying amount of the loans determined in accordance with IFRS 9 after applying the proposed amendments;
    3. the carrying amount of any financial liabilities at the date of the initial application of the proposed amendments in the statement of financial position that were previously designated at fair value through profit or loss (FVPL) but are no longer so designated as a result of the proposed amendments; and
    4. the reasons for any designation or de-designation of financial liabilities as measured at FVPL.

Amendments to disclosure requirements resulting from the Board’s tentative decisions to date (Agenda Paper 2G)

The Board tentatively decided to amend the disclosure requirements in IFRS 17 to reflect proposed amendments related to:

  1. the contractual service margin recognised in profit or loss on the basis of coverage units determined by considering both insurance coverage and investment-related services or investment-return services, if any, by requiring:
    1. quantitative disclosure, in appropriate time bands, of the expected recognition in profit or loss of the contractual service margin remaining at the end of the reporting period—ie removing the option in paragraph 109 of IFRS 17 to provide only qualitative information.
    2. specific disclosure of the approach to assessing the relative weighting of the benefits provided by insurance coverage and investment-related services or investment-return services, as part of the disclosure requirements in paragraph 117 of IFRS 17.
  2. insurance acquisition cash flows not yet included in the measurement of recognised groups of insurance contracts, by requiring:
    1. reconciliation of the asset created by these cash flows at the beginning and the end of the reporting period and its changes, specifically recognition of any impairment loss or reversals. The aggregation of the information provided in this reconciliation should be consistent with the aggregation an entity uses when applying paragraph 98 of IFRS 17 to the related insurance contracts.
    2. quantitative disclosure, in appropriate time bands, of the expected timing of the inclusion of these acquisition cash flows in the measurement of the related group of insurance contracts.

Implications on disclosure and transition requirements (Agenda paper 2H)

The Board tentatively decided to retain unchanged all disclosure and transition requirements in IFRS 17, except as described in the tentative decisions on Agenda Papers 2E, 2F and 2G.

Next steps

At its April 2019 meeting, the Board plans to consider the package of amendments tentatively decided by the Board as a whole. At that meeting the Board will consider whether:

  1. on the whole, the benefits of the amendments outweigh the costs; and
  2. on the whole, the amendments do not unduly disrupt implementation.

At the same meeting, the staff expect to request Board’s permission to start the balloting process for the proposed amendments to IFRS 17.

Feedback

The Task Force is keen to be given feedback from members as they put the IN to use.  To help with this, please use this form and get in touch with  Linda Vogel who will engage the TF as required.

Task Force members (as at march 2019)

  • Ian Laughlin (Taskforce Chair, Australian Prudential Regulation Authority (APRA), Australian Taxation office (ATO), Australian Securities & Investments Commission (ASIC) and Treasury)
  • Francis Beens (Insurance Council of Australia (ICA) and General Insurance Practice Committee Representative)
  • David Chan (APRA Representative)
  • Antony Claughton (Health Practice Committee (HPC) representative)
  • Ben Coulter (New Zealand Society of Actuaries)
  • Brendan Counsell (Premium Allocation Approach (PAA), International Actuarial Association (IAA) and the Accounting & Actuaries Liaison Committee AALC)
  • Briallen Cummings (Disclosures / OCI, reporting, current estimates and strategic transition)
  • Anne Driver (AALC, Australian Accounting Standards Board (AASB) TRG)
  • Trang Duncanson (Analyst Community, Financial Services Council (FSC), Actuaries Institute Communication Lead)
  • Jun Oh (APRA)
  • Brett Pickett (Discount rates, risk adjustment, LIWMPC representative and AALC)
  • Grant Robinson (Core Requirements)
  • David Rush (Variable Fee Approach (VFA), Australian Securities and Investments Commission (ASIC))
  • Andrew Scott (Actuarial Consultancy)
  • Alison Nanson (Life Risk Adjustment Working Group)
  • Kaise Stephan
  • Victoria Tidmas


WORKING WITH APRA

The Task Force has had a number of interactions with APRA, and this has led to a decision to set up working groups to consider specific issues of relevance to APRA.  These working groups will have representation from both APRA and the Task Force.  The first of the working groups is operational and is addressing the Variable Fee Approach (VFA).

As noted in the IN, AASB 17 is an accounting standard. The APRA working groups therefore cannot make decisions about the interpretation of AASB 17 but are considering issues that emerge for APRA from the adoption of AASB 17.  As an accounting standard, AASB 17 is a legal instrument that is enforceable by ASIC.

References

There are many documents that have been produced commenting on IFRS17/AASB17.

There is a list of useful documents and other references in Section 13 of the Information Note (page 202)

 

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