IFRS 17 Insurance Contracts - Exposure draft is imminent

A few final technical issues prior to publication of the ED

At the May 2019 meeting, the IASB discussed a few final technical issues on the proposed amendments to IFRS 17 Insurance Contracts prior to finalising the exposure draft, which is expected imminently.

The Board tentatively decided:

• to specify criteria that must be met for an insurance contract to provide an investment return service. The criteria are necessary conditions for such a service but are not determinative, such service might not exist even if the criteria are met. The criteria are:
  • there is an investment component, or the policyholder has a right to withdraw an amount;
  • the investment component or amount the policyholder has a right to withdraw is expected to include a positive investment return; and
  • the entity expects to perform investment activity to generate that positive investment return.

This decision revises an earlier one that established that investment services exist only in contracts that include investment components.

• to include guidance that a positive investment return can occur even when the absolute return is negative;
• to amend paragraph 103 of IFRS 17 to clarify that, in the reconciliation from the opening to the closing balance of insurance contract liabilities, an entity need not disclose investment components and refunds of premiums separately;
• to amend paragraph B123(a) of IFRS 17 to clarify that changes in the liability for remaining coverage related to amounts lent to customers are excluded from insurance revenue; and
• not to amend IFRS 17 in respect of insurance contracts issued by mutual entities. However, the Board decided to add a footnote to paragraph BC265 of the Basis for Conclusions on IFRS 17, to clarify that not all entities that may be described as mutual entities have the feature that the most residual interest of the entity is due to a policyholder.

For details of all the other proposed amendments and tentative decisions taken by the IASB see previous blog articles.

By Jessica Howard, Financial Reporting Advisory Director