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.