After the Addendum to Version 1.2 was produced the IASB Board met on 14 March, 9 April and 15 May 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:
- 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
- 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:
- chooses to apply the risk mitigation option to the group prospectively from the transition date; and
- 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:
- 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
- the transition requirements in IFRS 9 Financial Instruments for loans that transfer significant insurance risk, if an entity:
- elects to apply the requirements in IFRS 9 to a portfolio of such loans; and
- 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:
- elects to apply the requirements in IFRS 9 to a portfolio of such loans; and
- 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:
- to require an entity to apply the transition requirements in IFRS 9 that are necessary for applying the proposed amendments.
- 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.
- 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.
- 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.
- 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:
- the previous classification, including measurement category when applicable, and carrying amount of the loans immediately before applying the proposed amendments;
- the new measurement category and carrying amount of the loans determined in accordance with IFRS 9 after applying the proposed amendments;
- 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
- 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:
- 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:
- 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.
- 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.
- insurance acquisition cash flows not yet included in the measurement of recognised groups of insurance contracts, by requiring:
- 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.
- 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.
The Board addressed the possible amendments in the following order:
- overview of the amendments to IFRS 17—Agenda Paper 2A;
- due process steps, including permission for balloting—Agenda Paper 2B;
- sweep issues—Agenda Paper 2C; and
- Annual Improvements—Agenda Paper 2D and Agenda Paper 2E.
Overview of the amendments to IFRS 17; and due process steps, including permission for balloting (Agenda Paper 2A–2B)
- considered the proposed amendments to IFRS 17 as a whole;
- evaluated each of the proposed amendments against the criteria the Board set in October 2018;
- considered the likely effects of the proposed amendments to IFRS 17;
- considered the due process steps undertaken by the Board in completing the narrow-scope project on the amendments to IFRS 17 and confirmed that it wishes to publish an exposure draft setting out the proposed amendments to IFRS 17; and
- confirmed there are no planned dissents at this stage.
The Board also confirmed its tentative decisions from the November 2018 meeting relating to the mandatory effective date of IFRS 17 and the fixed expiry date for the temporary exemption in IFRS 4 from applying IFRS 9 Financial Instruments.
Sweep issues (Agenda Paper 2C)
The Board discussed additional stakeholder concerns relating to IFRS 17 (and IFRS 9) which have arisen in relation to the proposed amendments to IFRS 17.
The Board tentatively decided that the effective date of the proposed amendments should be aligned with the effective date of IFRS 17 so that entities would be required to apply IFRS 17, and any proposed amendments, for annual periods beginning on or after 1 January 2022. The Board also tentatively decided that entities would be permitted to apply IFRS 17, together with any proposed amendments, for earlier periods.
Annual Improvements (Agenda Paper 2D and Agenda Paper 2E)
The Board discussed the recommendations for other minor changes that would fall within the scope of Annual Improvements, but which could also be addressed in the exposure draft of proposed amendments to IFRS 17, set out in Agenda Paper 2D. The Board also received a supplementary paper summarising the feedback from the Transition Resource Group for IFRS 17 meeting held on 4 April 2019 on some of these Annual Improvements.
The Board tentatively decided to:
- amend paragraph B96(c) of IFRS 17 to exclude changes relating to the time value of money and financial risk from the adjustment to the contractual service margin. All Board members agreed with this decision.
- amend paragraph B96(d) and B97(a) of IFRS 17 to address disaggregation of changes in the risk adjustment for non-financial risk. All Board members agreed with this decision.
- amend paragraph B118 of IFRS 17 to clarify that an entity can discontinue the use of the risk mitigation option to a group of insurance contracts only if the eligibility criteria for the group cease to apply. All Board members agreed with this decision.
- clarify the definition of an investment component. All Board members agreed with this decision.
- amend paragraph 11(b) of IFRS 17 to ensure IFRS 17 applies to investment contracts with discretionary participation features. All Board members agreed with this decision.
- amend paragraph 48(a) and paragraph 50(b) of IFRS 17 to adjust the loss component for changes in the risk adjustment for non-financial risk. All Board members agreed with this decision.
- amend paragraph B128 of IFRS 17 to clarify that changes in the measurement of a group of insurance contracts caused by changes in underlying items should, for the purposes of IFRS 17, be treated as changes in investments and hence as changes related to the time value of money or assumptions that relate to financial risk. All Board members agreed with this decision.
At this meeting the Board:
- received an update on the Transition Resource Group for IFRS 17 Insurance Contracts (TRG) meeting, held on 4 April 2019;
- discussed technical issues for the Board to consider before finalising the exposure draft; and
- considered what comment period to set for the exposure draft.
Update on the discussions at the TRG meeting (Agenda Papers 2A–2B)
The Board received the summary of the TRG meeting held on 4 April 2019 and the TRG log of submissions considered at that and previous meetings.
Sweep issues (Agenda Paper 2C)
The Board tentatively decided:
- to specify in IFRS 17 criteria that must be met for an insurance contract to provide an investment return service. The criteria are necessary conditions for such a service but are not determinative—such service might not exist even if the criteria are met. The criteria are:
- there is an investment component, or the policyholder has a right to withdraw an amount;
- the investment component or amount the policyholder has a right to withdraw is expected to include a positive investment return; and
- the entity expects to perform investment activity to generate that positive investment return.
The Board’s tentative decision revises an earlier one that established that investment services exist only in contracts that include investment components.
- to include in IFRS 17 guidance that a positive investment return can occur even when the absolute return is negative (for example, in a negative interest rate environment).
- to amend paragraph 103 of IFRS 17 to clarify that, in the reconciliation from the opening to the closing balance of insurance contract liabilities, an entity need not disclose investment components and refunds of premiums separately.
- to amend paragraph B123(a) of IFRS 17 to clarify that changes in the liability for remaining coverage related to amounts lent to customers are excluded from insurance revenue.
The Board also tentatively decided to not amend IFRS 17 in respect of insurance contracts issued by mutual entities. However, the Board decided to add a footnote to paragraph BC265 of the Basis for Conclusions on IFRS 17, to clarify that not all entities that may be described as mutual entities have the feature that the most residual interest of the entity is due to a policyholder.
Comment period for Exposure Draft Amendments to IFRS 17 (Agenda Paper 2D)
The Board decided to set a comment period of 90 days for the Exposure Draft, a decision permission for which was given by the Due Process Oversight Committee on 23 April 2019.
The staff expects that Exposure Draft Amendments to IFRS 17 will be published at the end of June 2019.
At present, no further TRG meetings are scheduled. A TRG meeting may be scheduled in the future depending on the nature of any new submissions and whether discussion of those submissions would be helpful to stakeholders at that stage of implementing IFRS 17, without disrupting implementation.
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