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After several months of redeliberations, the International Accounting Standards Board (the Board) has published the final amendments to IFRS 17 Insurance Contracts.  

Insurers now have just 18 months to get ready to present their opening balance sheet in accordance with IFRS 17. The finishing line is in sight so let’s keep up the pace.

Mary Trussell
KPMG Global Lead, Insurance accounting change

Summary of amendments to IFRS 17

You can watch our video summarising the key amendments.

The following table takes a closer look at the key amendments by topic.

Topic Key facts and impacts          
  • Effective date
  • 1 January 2023 effective date for application of IFRS 17 and exemption from applying IFRS 9
  • Companies have just 18 months until the transition date of 1 January 2022
Scope of IFRS 17
  • Credit cards and similar products that provide insurance coverage
  • Most companies that issue these products will be able to continue with their existing accounting, unless the insurance coverage is a contractual feature, easing implementation for non-insurers
  • Loan contracts that meet the definition of insurance but limit the compensation for insured events to the amount otherwise required to settle the policyholder’s obligation created by the contract
  • Companies that issue such loans – e.g. a loan with waiver on death – have an option to apply IFRS 9 or IFRS 17, reducing the impact of IFRS 17 for non-insurers
Measuring the contractual service margin (CSM)
  • Accounting policy choice for interim reporting
  • Companies will choose to apply either a ‘period-to-period’ or ‘year-to-date’ approach, allowing greater opportunity for consistency with current practice and for subsidiaries to align reporting with their parent
  • Insurance contract services now include both insurance and investment services
  • Revenue and profit emergence will better reflect performance of the wide range of insurance products and the services they provide to customers
  • Accounting for assets and liabilities before the related group of contracts is recognised
  • Allocating insurance acquisition cash flows to future renewal groups reduces the risk of groups becoming onerous solely from acquisition expenses paid relating to future renewals
  • The allocation is revised at each reporting period to reflect any changes in assumptions that determine the inputs to the method of allocation used, until all contracts have been added to the group.
  • Companies now need to assess each period the recoverability of insurance acquisition cash flow assets usually on a more granular level than applied today
Transitioning to IFRS 17
  • Contracts acquired in their settlement period
  • Companies may be able to account for acquired contracts before the transition date as liabilities for incurred claims
  • Assets for insurance acquisition cash flows
  • In many cases, companies will be required to identify and recognise an asset for insurance acquisition cash flows incurred prior to transition
  • Companies are not required to perform a recoverability assessment for periods prior to transition 
  • Transition reliefs and minor amendments
  • Various amendments and impacts – see here for further detail
Accounting for direct participating contracts  
  • Risk mitigation option expanded to non-derivative assets at FVTPL and reinsurance contracts held and extended to provide relief prospectively from the transition date
  • Broader application of the risk mitigation option will lead to fewer accounting mismatches
  • If a company meets the risk mitigation option criteria before transition, it can now apply the fair value approach to the related contracts at transition 
  • Applying the OCI option and risk mitigation option together 
  • Companies applying both options together will be able to achieve better matching in the income statement
  • Eligibility criteria for VFA 
  • Assessed on a contract level instead of group level as some companies had interpreted
Accounting for reinsurance contracts held
  • Accounting for recovery of losses on initial recognition
  • Companies will be able to offset losses on initial recognition of direct insurance contracts based on a prescribed formula if they are covered by reinsurance contracts held, reducing accounting mismatches
Presentation and disclosure requirements  
  • Presentation in the statement of financial position
  • Relief for companies to present (re)insurance contract assets and liabilities at a portfolio level, instead of group level
  • Income tax chargeable to the policyholder
  • Income taxes specifically charged to policyholders may now be included in fulfilment cash flows, better reflecting local practice in certain jurisdictions

 

With these amendments, the Board is responding to the concerns and implementation challenges raised by insurers and other stakeholders, having monitored and supported IFRS 17 implementation since its publication in 2017.

Joachim Kölschbach
KPMG global IFRS insurance leader

Next steps

Insurers can now move ahead and apply the revised standard to get ready for transition.

You can watch our video and read our summaries of the Board’s amendments and the Transition Resource Group (TRG) for Insurance Contracts discussions in our online magazine Insurance – Transition to IFRS 17.

Our updated publication First Impressions contains detailed analysis and insight on the amended standard. Speak to your usual KPMG contact to find out more about the Board’s deliberations.

Find out more

Visit home.kpmg/ifrs17 to read all of our insights on the new insurance contracts standard. Also, our insights on insurers’ progress with IFRS 17 and IFRS 9 Financial Instruments implementation can be found on our In it to win it web page.