A look at current financial reporting issues

IFRS 17 marks a new epoch for insurance contract accounting

In May 2017, the International Accounting Standards Board (IASB) issued IFRS 17, ‘Insurance Contracts’, and thereby started a new epoch of accounting for insurers. Whereas the current standard, IFRS 4, allows insurers to use their local GAAP, IFRS 17 defines clear and consistent rules that will significantly increase the comparability of financial statements. For insurers, the transition to IFRS 17 will have an impact on financial statements and on key performance indicators.

Under IFRS 17, the general model requires entities to measure an insurance contract at initial recognition at the total of the fulfilment cash flows (comprising the estimated future cash flows, an adjustment to reflect the time value of money and an explicit risk adjustment for non-financial risk) and the contractual service margin. The fulfilment cash flows are remeasured on a current basis each reporting period. The unearned profit (contractual service margin) is recognised over the coverage period.

Aside from this general model, the standard provides, as a simplification, the premium allocation approach. This simplified approach is applicable for certain types of contract, including those with a coverage period of one year or less.

For insurance contracts with direct participation features, the variable fee approach applies. The variable fee approach is a variation on the general model. When applying the variable fee approach, the entity’s share of the fair value changes of the underlying items is included in the contractual service margin. As a consequence, the fair value changes are not recognised in profit or loss in the period in which they occur but over the remaining life of the contract.

The new standard is applicable for annual periods beginning on or after 1 January 2021. Early application is permitted for entities that apply IFRS 9, ‘Financial Instruments’, and IFRS 15, ‘Revenue from Contracts with Customers’, at or before the date of initial application of IFRS 17. The standard can be applied retrospectively in accordance with IAS 8, but it also contains a ‘modified retrospective approach’ and a ‘fair value approach’ for transition depending on the availability of data.

Read the full report on IFRS 17


Contact:

Immy Pandor
Assurance Partner
Tel. +41 58 792 48 78
immy.pandor@ch.pwc.com

Published by

Sabine Bartenschlager-Igel

Sabine is Senior Manager within PwC’s Legal FS Regulatory & Compliance Services.
After completing the Master of International Business and Law (MIBL) at the University of Sydney (Australia), Sabine did her legal clerkship at the courts of Frankfurt (Germany) and got admitted to the bar in Germany.

Sabine specializes in fund and asset management company set-up and authorization, investment vehicle structuring and lifecycle management and all related compliance matters. Within the Legal FS Regulatory & Compliance Services she supports financial intermediaries on corporate governance and compliance issues.

She manages advising and licensing projects for financial intermediaries in Switzerland, Liechtenstein and Luxembourg.
The Legal FS Regulatory & Compliance Services team was awarded the Highly Commended distinction in the Best Regulatory Advisor category at the 2013 HFMWeek Service Provider Awards.