EFRAG lists key IFRS 17 issues for “further consideration” by IASB – what does this mean for insurers?

Last week the European Financial Reporting Advisory Group (EFRAG) published a letter  addressed to the IFRS Foundation listing concerns raised by 60 European insurance companies in two case studies regarding the implementation of IFRS 17.

Concerns raised

Among these concerns, which EFRAG requested be further considered by the International Accounting Standards Board (IASB) were topics such as:

·        CSM amortisation (impact on contracts that include investment service);

·        Reinsurance (onerous underlying contracts that are profitable after reinsurance, contract boundary for reinsurance contracts where underlying contracts are not yet issued);

·        Transition (extent of relief offered by the modified retrospective approach and challenges in applying the fair value approach); and

·        Balance sheet presentation (cost-benefit trade-off of separate disclosure of groups in an asset position and groups in a liability position and non-separation of receivables and/or payables).

Who is EFRAG?

EFRAG is a private association which aims to serve the public interest by coordinating the development of views around international accounting standards within the EU.  Its Member Organisations are European stakeholders and Nation al Organisations having knowledge and interest in the development of IFRS and how they contribute to the efficiency of capital markets. 

European Regulation establishes a specific process for the endorsement of international accounting standards (such as IFRS) in the EU.  While the positions taken by EFRAG and the content of their work do not reflect the position of the European Union, the European Commission does work with and receive advice from a number of bodies, including EFRAG, when undergoing this endorsement process.

What this means for insurers

The next meeting of the Transition Resource Group (TRG) for IFRS 17 will be held on 26-27 September in London. Given the scale of IFRS 17, it is not clear whether there will be any immediate action taken or changes made following discussion of this letter at the TRG meeting. 

Companies affected by IFRS 17 may be wondering whether such a request by an organisation as influential as EFRAG may lead to delays in implementation, in a situation reminiscent of postponements of Solvency II implementation deadlines between 2012 and 2016. At that time, a postponement of implementation date meant a sudden grinding to a halt of all Solvency II preparations for many European life offices. When the final deadline was announced, there was an expensive scramble to restart and complete preparations in time.

If there is a lesson to be learnt from this experience, it is to keep sight of the underlying reasons for investing in the system and process improvements that will make insurers IFRS 17-ready. There may be a temptation to view potential delays as an indication to step back from the onerous technical and data management developments that IFRS 17 demands. If, however, that temptation can be resisted, and insurers follow through on their commitment to investing in systems and processes to make them more transparent, innovative and agile, they will add a lot of value to their customers and their industry – whether the IASB demands it or not.

The full text of EFRAG’s letter to the IFRS Foundation may be found here.

MBE specialises in IFRS 17 gap analysis and impact assessment, as well as system and process design. If you would like to discuss how to become IFRS 17-ready, please get in touch.