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 MARCH - JUNE 2019
After the Addendum to Version 1.2 was produced (see above), 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). Details of the outcomes from these meetings can be found in the Addendum and here.
On 26 June 2019, the IASB released an exposure draft (ED) dealing with the proposed changes to the Standard.
The IASB will accept comments on the ED until 25 September. The Task Force will prepare thoughts on behalf of the Institute and will work with the AASB TRG on co-ordinated comments. Please send any views you have to the Task Force through the feedback process below.
The changes in the ED are largely in-line with the tentative decisions made by the IASB over the last six months or so.
The main areas of proposed change are:
- Effective date to be deferred by one year to 1 January 2022.
- Exclusions of certain loan and credit card contracts from the scope of IFRS 17.
- Allowance for expected recovery of acquisition costs from contract renewals.
- Allowance for investment activities in recognising contractual service margin.
- Applicability of risk mitigation option for contracts with direct participation features.
- Allowance for reinsurance recoveries when losses are recognised on underlying contracts.
- Simplification of presentation of insurance contracts in statement of financial position.
- Changes to transition requirements.
A marked-up version of IFRS 17 showing the ED changes is here.
The Basis for Conclusions for the ED is here.
The AASB 17 Task Force is now working on an updated version of the Information Note to reflect the changes made in the ED.
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.
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)