The Transition Resource Group (TRG) for IFRS 17 will meet four times during 2018 to discuss questions raised regarding the implementation of the IFRS 17 Standard. In this article, Milliman consultants summarise key points arising from the TRG meeting of 2 May 2018. The TRG meeting covered some of the implementation challenges raised by TRG members and a number of examples relating to the following concepts in IFRS 17:
• Coverage units
• Contract boundaries
• Risk adjustment at the group level
• Bundling insurance contracts
There are a number of areas of International Financial Reporting Standard (IFRS) 17 where the International Accounting Standards Board has allowed firms to make choices on their approaches. This paper by Milliman consultants focuses on the approaches available under IFRS 17 for the derivation of the discount rates for use in the various calculations required by the Standard.
A recent survey by Milliman’s William Hines and Cici Zhang measures insurers’ preparedness for International Financial Reporting Standard (IFRS) 17. Responses to the survey’s 52 questions came from more than 90 companies around the world.
On 18 May 2017 the International Accounting Standards Board (IASB) published its new International Financial Reporting Standard (IFRS) on accounting for insurance contracts: IFRS 17. IFRS 17 will apply for accounting periods starting on or after 1 January 2021, but prior year comparative figures will be required.1
The Standard is directed at insurance contracts, rather than insurance entities. So it will apply, for example, to equity-release mortgages written by banks, as well as to those listed insurers required to report under the IFRS and to those insurers that adopt the IFRS voluntarily.
The publication was accompanied by webinars conducted by members of the IASB Staff, including Q&A sessions.2 The responses provided by the staff were caveated as being their own views, and not necessarily those of the IASB. Nevertheless, the answers offer some interesting insights, which are briefly summarised in this blog.
The aim of the Standard is consistent accounting for all insurance contracts, with increased transparency in financial information reported by insurance companies and calculated information based on current estimates. However, the staff acknowledges that the Standard is not directionally convergent with the aims of the Financial Accounting Standards Board (FASB), the standard setter for the United States.
In summary, the principle-based Standard requires an assessment of the profitability of insurance contracts when they are first issued and, if positive, recognition of that value (the Contractual Service Margin or CSM) over the lifetime of the contracts in a manner that reflects the timing of the insurance services provided by the insurer.3
The staff expects firms to incur significant implementation costs.
The new International Financial Reporting Standards (IFRS) standard for insurance contracts promises to have a transformative effect on insurers’ financial reporting.
IFRS calls for a more nuanced and comprehensive approach to risk modelling—an approach that will require not just specialized actuarial expertise, but also efficient implementation and unprecedented processing speed to meet strict reporting timeframes.
Milliman has unparalleled experience with Solvency II and other regulatory regimes, coupled with groundbreaking systems implementation and industrialisation capabilities.