International Financial Reporting Standards
Insurance Contracts
Project Overview
April 2014
The views expressed in this presentation are those of the presenter,
not necessarily those of the IASB or IFRS Foundation.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Contents
2
• 2013 Exposure Draft Insurance Contracts: the story so far
• Summary of the feedback on the 2013 ED
• A reminder of our proposals
• Five targeted areas
• Next steps
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
2013 ED Insurance Contracts:
the story so far
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• 2013 ED published 25 June 2013 with comment letter deadline 25 October
2013
• The IASB received 194 comment letters and received input during 187
outreach meetings.
US/Canada
1%
Oceania
10%
Region Africa
Type of respondent
5%
US
13%
Asia
19%
Regulator
7%
South
America
2%
North
America
1%
International
10%
Standardsetter
12%
Canada
7%
Europe
32%
User Academic
1%
3%
Accounting
Profession
11%
Actuaries
9%
Auditors
3%
Other
2%
Preparer /
Represent
ative body
15%
Preparer:
Other
1% Preparer:
Preparer:
Insurer
30%
Bank
6%
• Comment letter summaries discussed in January 2014 and redeliberations
began in March 2014
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Summary of the feedback on the 2013 ED
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• Broad support for finalising the Standard based on current
measurement of the insurance contract:
– The Standard is needed and the need is urgent
• Convergence, although welcome, should not come at the expense of
further delay to the new Standard
• Widespread agreement with direction of proposals relating to
unlocking the contractual service margin (CSM) and transition
• Opposition to:
– Complexity from mirroring
– Mismatches from mandatory use of other comprehensive income (OCI)
– Insurance contract revenue
• Limited discussion on other issues
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
A reminder of our proposals: current, marketconsistent measurement of insurance contracts
Contractual service margin
(Contract profit)
‘Fulfilment cash flows’
Future cash flows: expected
cash flows from premiums and
claims and benefits
Risk adjustment: an
assessment of the uncertainty
about the amount of future cash
flows
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Contractual service margin:
A component of the measurement of the insurance
contract representing the risk-adjusted expected
profit from the contract.
Fulfilment cash flows:
A current, updated estimate of the amounts the
entity expects to collect from premiums and pay
out for claims, benefits and expenses, adjusted for
risk and the time value of money.
Discounting: an adjustment
that converts future cash flows
into current amounts
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
A reminder of our proposals:
up-to-date information about performance
6
Statement of Comprehensive Income
Contractual service margin
(Expected contract profit)
20XX
Insurance contracts revenue
1
‘Fulfilment cash flows’
Incurred claims and expenses
Future cash flows: expected
cash flows from premiums and
claims and benefits
(X)
Operating result
X
Investment income
X
2
Interest on insurance liability
Risk adjustment: an
assessment of the uncertainty
about the amount of future cash
flows
3
4
Discounting: an adjustment
that converts future cash flows
into current amounts
X
1.
2.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
(X)
Investment result
X
Profit or loss
X
Effect of discount rate changes on
insurance liability
(X)
Total comprehensive income
XX
Changes in estimates relating to future services
All other expected cash flow changes
3.
4.
Based on a cost view
Based on a current view
Five critical issues addressed in the 2013 ED
1
Treatment of changes in estimates: unlocking the CSM
2
Presentation of interest expense
3
Presentation of insurance contract revenue and expenses
4
Contracts with participating features
5
Effective date and transition
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
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1
Treatment of changes in estimates:
unlocking the CSM
8
2013 ED proposals:
Changes in estimates of cash flows relating to future service
recognised in period when service is provided
Feedback:
Broad support for direction of the 2013 ED
Tentative decisions:
• Confirm the ED proposal (modified, so that):
– Changes in estimates of risk adjustment relating to future service also
recognised in period when service is provided
– Reversal of previously recognised losses before margin is rebuilt
Next steps:
• Interaction between unlocking contractual service margin and use of OCI
• Application to contracts with participating features
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
2
Presentation of interest expense
9
2013 ED proposals:
An entity should present the effect of discount rate changes in OCI
Feedback:
General support that the effect of discount rate changes can be presented in OCI, but significant
concerns that mandatory use would create extensive mismatches
Tentative decisions:
• Accounting policy choice to present the effect of changes in discount rates in profit and loss or in
OCI that would apply to all contracts within a portfolio
• Require disclosures that would disaggregate the change in interest expense into its component
parts and that would allow their comparison (see example on the next slide)
Next steps:
• More guidance on when an entity can change its accounting policy choice
• Interaction with definition of a portfolio
• Interaction between unlocking CSM and use of OCI
• Application to contracts with participating features
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
2
Presentation of interest expense
Example:
Effect of change in discount rates on insurance
contract measurement
Profit or
loss
approach
OCI
approach
Analysis of interest expense in profit or loss / total
comprehensive income
Interest accretion at current rate b/f
38,018
38,018
7,266
7,266
Effect of change in discount rates in period
47,785
47,785
Interest expense in period
93,069
93,069
Difference between the measurement of amounts that
adjust the CSM at locked-in and current discount rates
Reconciliation of total interest expense to the
statement of comprehensive income
Profit or loss: Interest accretion expense
38,555
Movement in OCI
54,514
Interest expense in total comprehensive income
93,069
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
10
3
Presentation of insurance contract
revenue and expenses
11
2013 ED proposals:
• An entity should present insurance contract revenue as the
consideration for insurance services provided under the
insurance contract, excluding amounts deposited by customers.
• Expenses presented in the period incurred and exclude
repayments of deposits.
Feedback:
Support for the rationale, but significant concerns about whether
the benefits of this proposal would outweigh the additional
complexity.
Next steps:
We plan to discuss at the April 2014 meeting.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
4
Contracts with participating features
12
2013 ED proposals:
An exception to how the insurance contract is measured and how changes in
measurements are presented when there can be no economic mismatch
between the insurance contract and assets backing that contract
Feedback:
Significant concerns over complexity and scope of proposals, including
concerns about inability to eliminate all accounting mismatches
Next steps:
We plan to consider the application of the model to contracts with
participating features from June 2014.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
5
Effective date and transition
13
2013 ED proposals:
An entity should apply the Standard retrospectively in accordance
with IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors when it is practicable, and apply specified
simplifications when it would not be practicable.
Feedback:
Broad support for direction of the 2013 ED
Next steps:
We plan to consider transition in the context of a new final model.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Next steps
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• April Board meeting:
– Insurance contracts revenue
– Approach to issues raised in comment letters that
were not subject of targeted questions
• Redeliberations are planned to be completed in 2014.
• Publication is planned for 2015.
• More exact timetable will depend on decisions the IASB
takes in April.
© IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
For more information…
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• High level summary of
project
Disclaimer
Insurance Contracts: Project Overview is issued by the International Accounting Standards Board (IASB), 30 Cannon Street,
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