IFRS 17 Insurance Contracts – Deferred effective date of IFRS 17 and the temporary exemption of IFRS 9

At the International Accounting Standards Board’s (“IASB”) meeting in December 2019, it was tentatively decided to delay the effective date of IFRS 17 Insurance Contracts (“IFRS 17”) and the fixed expiry date of the temporary exemption from applying IFRS 9 Financial Instruments (“IFRS 9”) in IFRS 4 Insurance Contracts (“IFRS 4”).

Why?

IFRS 17, undoubtedly, represents the most significant change to insurance accounting requirements and, therefore, is due to bring in a substantial increase in workload and costs for companies when it becomes effective. Many stakeholders have, therefore, expressed continuous and serious concerns with first-time implementation of IFRS 17 and the associated deferred application of IFRS 9.

Effective date amendments

The Exposure Draft: Amendments to IFRS 17, which was published back in June 2019, proposed amending the original effective date from 1 January 2021 as follows:

• For the mandatory effective date of IFRS 17- Companies would be required to apply IFRS 17 to accounting periods beginning on or after from 1 January 2022; and
• For the expiry date in IFRS 4 allowing for the temporary exemption from applying IFRS 9 – All insurers reporting under IFRS would be required to apply IFRS 9 from the same date, being 1 January 2022.

How revisions to the original amendment were approved

Many respondents to the original proposed amendment believe that for a well-controlled and robust implementation, and despite the significant resources being dedicated to IFRS 17, more time is still required to implement the new requirements.

As a result, it was suggested that 1 January 2023 would be a more realistic effective date for IFRS 17, therefore allowing a further 12 months from the original proposed amendment date of 1 January 2022. Overall this being five and half years after IFRS 17 was first issued.

The IASB staff acknowledged that implementation by 2022 would be demanding, particularly for smaller insurers. Consequently the IASB staff analysed the matter and decided that whilst the significant improvements to insurance accounting being introduced by IFRS 17 are urgently needed – a point reiterated by all regulators and users of financial statements responding to the Exposure Draft – they acknowledged the desire for insurers in some of the major jurisdictions around the world to be able to initially apply IFRS 17 at the same time, given the significance and extent of the changes the being introduced. 

Accordingly, on balance, the IASB staff recommended that the Board defer the effective date of IFRS 17 to accounting periods beginning on or after 1 January 2023. And, hence, to maintain alignment of first-time application of IFRS 17 and IFRS 9, it was further recommended to extend the fixed expiry date of the temporary exemption from applying IFRS 9, in IFRS 4, to accounting periods beginning on or after 1 January 2023.