Proposed IFRS 17 advances focus on reinsurance contracts

Willis Towers Watson goes in-depth on suggested amendments to the standard

Proposed IFRS 17 advances focus on reinsurance contracts

Insurance News

By Ryan Smith

The International Accounting Standards Board (IASB) met Wednesday to deliberate some of the IFRS 17 changes proposed in the Exposure Draft (ED) based on stakeholder feedback. The IASB decided to defer discussions on the effective date of IFRS 17 until the extent and complexity of all amendments had been determined, expected at the end of February, according to a Willis Towers Watson report.

The IASB approved the adoption of six proposals in the ED for which there had been widespread support, and also agreed to proceed with the proposed amendments in respect of deferring some acquisition costs for renewal business.

Comments on the ED have shown concern with the treatment of reinsurance contracts held, and the IASB approved significant changes to the ED proposals in this area.

The IASB’s intention to allow insurers to recognise gains on reinsurance contracts held in respect of groups of onerous underlying contracts had been welcomed by respondents. However, most respondents were concerned that the scope of the relief was too narrow, according to Willis Towers Watson. In response, the board has agreed to broaden the scope so that all reinsurance contracts held, including both proportional and non-proportional, would be taken into account when they cover groups of onerous underlying contracts, allowing losses on initial recognition of the underlying contracts to be offset by the matching reinsurance.

“If ultimately ratified and incorporated into the final standard, this change would largely address insurers’ concerns about the consequences of the existing economic mismatch,” said Roger Gascoigne, senior director at Willis Towers Watson. “Nevertheless, insurers should be aware that implementing these changes at this stage is likely to add significantly to the complexity of reflecting many current reinsurance or retrocession arrangements, particularly for contracts measured using the Premium Allocation Approach. It is imperative that both insurers and reinsurers analyse the specific impacts on their results, processes and overall implementation programs.”

“The treatment of reinsurance under IFRS 17 has been deserving of greater attention for some time,” said Brian Shea, managing director of strategic and financial analytics at Willis Towers Watson. “These proposed amendments better reflect the role of reinsurance in mitigating risks. We continue to work with insurers and reinsurers to ensure that their reinsurance programs are fit for IFRS 17.”

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