FRC: Benefits and barriers to implementation of IFRS 17 Insurance Contracts

19 Jun 2018 12:33 PM

A summary of the findings from the event that took place on 24 April is now available here.

Panel chair: Anthony Appleton – Director of Accounting and Reporting Policy, FRC

The chair referred to the European endorsement process of IFRS 17 and noted that EFRAG will report to the European Commission by the end of 2018.
EFRAG’s advice on the endorsement of IFRS 17 is evidence based. To that end the chair emphasised the importance of UK participation in the EFRAG simplified case study.

Panel members:

Jo Clube – Accounting Policy Development Lead, Aviva PLC
Stephen Cooper – Consultant
William Hawkins – o-Head of European Research (Insurance), Keefe, Bruyette & Woods
Roger Marshall – Board member FRC and EFRAG
Stuart Wilson – Insurance Partner, EY

Panel members gave their perspectives and made individually the following observations:

Currently different bases and principles are applied internationally for insurance contract accounting. The IASB spent much time listening to stakeholders and building a consensus around the requirements in IFRS 17.
Some jurisdictions outside of Europe have already confirmed adoption of the standard, the EU decision on endorsement is expected in 2019.
EFRAG is in process of gathering evidence to support its advice to the EC on endorsement. The importance of good quality evidence from the UK was stressed.
The effort to implement IFRS 17 should not be underestimated, both in length and complexity. The adoption of IFRS 9 Financial Instruments needs to be factored into the implementation process.
For life insurers, transition, level of aggregation and ability to match insurance liabilities and assets were noted as critical aspects for implementation.
General insurers may be able to use the simpler premium allocation approach, however, changes to the accounting for acquisition costs and the accounting for premiums on a received basis require attention.
IFRS 17 will address some of the problems of current accounting, especially the inconsistency in financial reporting by insurers. It was noted that IFRS 17 will and cannot be expected to be a perfect solution. It will take time for the new reporting requirements and practices to be embedded.

The audience raised issues and questions which were addressed by panel members.

How much will implementation cost?

It is difficult to accurately estimate the cost of implementing IFRS 17.
The ability to benefit from Solvency II processes and systems may be limited, however, lessons can be learned from the implementation process itself.
EFRAG endorsement process will look at cost/benefit of IFRS 17.
It was predictable that implementation of IFRS 17 would be costly, this should not be a barrier to adoption.