IFRS 17 deferred to 1 January 2023

At its meeting on 17 March 2020, the IASB:

1. Agreed to defer the effective date of IFRS 17 to annual reporting periods beginning on or after 1 January 2023
2. Agreed to extend the fixed expiry date of the temporary exemption from applying IFRS 9 for qualifying insurers (as contained in IFRS 4), so that all entities must apply IFRS 9 for annual reporting periods beginning on or after 1 January 2023
3. Gave the IASB staff permission to start the balloting process for finalising amendments to IFRS 17

The staff expects the amendments will be issued in the second quarter of 2020.  

Effective date of IFRS 17:

The IASB agreed with the staff recommendation to defer the effective date of IFRS 17 Insurance Contracts (IFRS 17), including the amendments, by two years to annual reporting periods beginning on or after 1 January 2023. Early adoption is permitted, provided an entity also applies IFRS 9 Financial Instruments (IFRS 9).

The staff believe this should allow enough time for an orderly introduction of the amended IFRS 17 globally. This will enable more entities to apply IFRS 17 at the same time, to the benefit of users of financial statements. It should also ease the implementation challenges some entities are facing, thereby improving the quality of initial application. The staff acknowledged that there are costs associated with further delays to implementation, particularly for users of financial statements and those entities that started implementation earlier.

Observations from the Board meeting: Board members agreed with the staff recommendation. One Board member felt that 2023 would allow a reasonable amount of time for all insurers, including small ones, to apply IFRS 17 properly and at the same time. Another noted that none of the reasons for a further delay were sufficient in themselves but considering them in aggregate was persuasive. Another supported delay to 1 January 2023 by noting that there would be only six months between publication of the amended Standard and the transition date of 1 January 2021 in case the Board would have stayed with the effective date as proposed in the ED.

IFRS 9 temporary exemption in IFRS 4

The staff noted that any further extension to the temporary exemption (TE) from applying IFRS 9 in IFRS 4 Insurance Contracts (IFRS 4) is a question of balancing the need for improved information resulting from IFRS 9 against the benefit for entities to be able to apply IFRS 17 and IFRS 9 at the same time.

On balance, the staff believes that the benefit of extending the TE by a further a year to maintain alignment with IFRS 17 and IFRS 9 would outweigh the disadvantage of a further delay to the implementation of IFRS 9.

Observations from the Board meeting: Board members agreed with the staff recommendation. One Board member felt it was only logical to extend the TE given that the effective date of IFRS 17 was delayed, in part, to help small insurers be ready. Another noted that requiring separate effective dates for IFRS 9 and IFRS 17 could disrupt implementation projects already underway. The IASB Chairman did express concern about extending the time that users of financial statements would be without a clear picture of the economic effects on insures of their insurance contracts and financial instruments.

Due process steps and permission for balloting:

The IASB gave the staff permission to begin the balloting process, in line with the plan to issue the final amended Standard in the second quarter of2020. It agreed that it is important that IFRS 17 is, and is seen to be, stable to allow enough time for its orderly introduction around the world.

The Board agreed with the staff recommendation that re-exposure of the amendments to IFRS 17 is not required. It has made tentative decisions during its re-deliberations to amend the proposals in the ED. However, these changes are in response to feedback and do not, in the Board’s view, include any fundamental changes on which respondents have not had opportunity to comment.

Next steps:

The staff plan to draft the amendments to IFRS 17 and bring any sweep issues identified during the balloting of the amendments for discussion at a future meeting. The staff expects the amendments will be issued in the second quarter of 2020, in line with the Board’s plan as stated in the ED.

How we see it: 

The decision of the Board means preparers are effectively granted one year more to prepare for the initial application of IFRS 17 and IFRS 9, compared to the proposals in the June 2019 Exposure Draft. Even though the Board decided not to make a change for some fundamental topics (e.g., the annual cohort requirement), there are still a number of changes made during the re-deliberation that will have a significant impact on implementation efforts. The decisions regarding the recovery of losses by reinsurance held, investment expenses included in fulfilment cash flows, recognition and impairment of assets arising from insurance acquisition cash flows, and reporting frequency will require significant evaluation and may cause preparers to rethink some of their IFRS 17 solutions.

Preparers should therefore address the following key tasks in the near future:

•  Reassess overall programme and workstream timeframes, as well as key milestones allowing for the new effective date for IFRS 17 and IFRS 9
• Update accounting policies and revisit policy choices in response to the revised standard
• Reassess the current status of system design and configuration requirements in response to the revised standard and any changes to accounting policies
• Align testing and parallel run strategy and planning, as well as building sufficient controls over the process
• Update and engage key stakeholders (including regulators, analysts, etc.) on next steps and expected impacts

 Look out for our March 2020 Insurance Accounting Alert publication for further details of the insurance contracts discussions at the March IASB meeting.