EIOPA appreciates the opportunity to provide input into the establishment of a global accounting standard for financial instruments, which is particularly relevant for the ongoing deliberations on a future IFRS on insurance contracts. EIOPA fully supports the development of a single, global, high-quality financial reporting and accounting standard for both financial instruments and insurance contracts.

EIOPA notes that one of the drivers for the IASB's decision to consider limited amendments to IFRS 9 is to "take into account the interaction between the classification and measurement of financial assets and the accounting for insurance contract liabilities". From the perspective of European insurance supervision, addressing this issue is the primary focus of the letter.

EIOPA is supportive of the IASB's willingness to reopen IFRS 9 to address certain issues that will arise around the classification and measurement of financial assets because of its interaction with IFRS 4. However, as the Board of the IASB has not yet finalised its deliberations on IFRS 4, it is difficult to express a definitive opinion on the full impact of the revisions on issuers of insurance contracts.

EIOPA broadly welcomes the IASB's proposal to consider the economic relationship of the cash flows when determining whether they are solely payments of principal and interest. EIOPA believes that this assessment is within the principles of IFRS 9. Notwithstanding this, it believes that it is difficult to make a complete assessment of the proposal at this stage because in its view, the ED does not define how new terms should be applied. This is particularly the case for the terms "insignificantly different" and "benchmark cash flows" and therefore, EIOPA calls for extra guidance to be provided on how these terms should be interpreted.

EIOPA believes that the ED provides sufficient application guidance in the examples outlined in the paper e.g. the resetting of a monthly variable interest rate to a three month interest rate. However, as IFRS 9 is not currently applied in Europe, EIOPA is not in a position to confirm whether the guidance is comprehensive and therefore would welcome extra field testing by the IASB in this area.

[Pertaining to Question 2] EIOPA believes that instead of broadening the interpretation of "benchmark cash flows" paragraph 84.1.98 can be read as "the example" as opposed to "an example" and would therefore request the IASB to consider making the example broader/more general.

[Pertaining to Question 4] Insurers manage assets using both a "hold to collect" and "sell" basis and therefore EIOPA appreciates the IASB's efforts in trying to address this type of business model in the ED.

EIOPA recognises the benefits of maintaining the two classification criteria, since it retains the simplification achieved in IFRS 9 and reduces judgement. However, EIOPA sees the potential benefit of allowing a classification of fair value through OCI to address the concerns of some companies that:

• have a business model in which assets backing insurance liabilities are managed both in order to collect contractual cash flows and for sale; and
• consider that the recognition in P&L of all changes in fair value of financial assets and current values of insurance liabilities (change in discount rate) may not always reflect the long term nature of their insurance businesses.

EIOPA believes that in the context of the insurance activities, classifying the assets to faithfully reflect the insurer's businesses models is not the whole issue; for the activities being traditionally based on ALM, it is essential that the combination of IFRS 4 and IFRS 9 avoids any artificial accounting mismatches in the financial statements of insurers.

From an insurance contracts perspective, although it is too early to be certain, EIOPA believes that the proposed third classification is insufficient to address all the accounting mismatches arising from IFRS 4 as currently being developed. To overcome this uncertainty, EIOPA has considered a number of potential solutions:

(i) To allow issuers of insurance contracts to use fair value through OCI where assets are used to back insurance contract liabilities which have corresponding changes recognised in OCI (either by providing this option in IFRS 9 or in IFRS 4).

(ii) To broaden the scope of eligible financial assets for the third category.

(iii) To remove the third category and to present all movements in insurance liabilities in the P&L. In order to eliminate or significantly reduce accounting mismatches entities could use the option to designate financial instruments at fair value through profit or loss according to IFRS 9, paragraph 4.1.5.