26 June 2020

CRE: IASB releases final IFRS 17 but concerns remain over business implications, says WTW

With the release this week of the final insurance contracts standard IFRS 17 by the International Accounting Standards Board (IASB), a survey from Willis Towers Watson (WTW) has found that just 10% of the surveyed companies already have a clear view on the business implications of IFRS 17.

IFRS 17 will take effect with annual reporting cycles beginning on or after 1 January 2023. WTW said that IFRS 17 (2020) reflects the results of an in-depth consultation process of the standard proposed in the Exposure Draft Amendments to IFRS 17, published by the IASB in June 2019 in response to feedback on IFRS 17, as originally issued in 2017.

WTW explained that in response to those consultations between the IASB, the insurance industry, regulators and accounting bodies, significant changes were made to that Exposure Draft:

The extension of the effective date to 1 January 2023 from 1 January 2022 proposed in the Exposure Draft

The ability of insurers to recognise gains on the initial recognition of reinsurance contracts held, which cover onerous underlying contracts

The clarification of the treatment of the contractual service margin attributable to investment-return service and investment-related service

The expansion of the risk mitigation option to include reinsurance contracts held where they are used in a manner similar to that of financial instruments.

Ralph Ovsec, senior director, insurance consulting and technology, at WTW, said: “IFRS 17 remains complex. This is partly due to the IASB’s desire to maintain this as a principles-based standard. There remain areas of significant judgement and many companies continue to face major implementation challenges, compounded by Covid-19.”

The WTW global survey of insurers’ IFRS 17 programmes found that 77% of the survey participants expect to continue their implementations as originally planned following Covid-19, while 9% have been redesigning or pausing parts of their programme. In light of the one-year delay to 2023, 59% want to continue as originally planned. Some 31% want to do more and 10% intend to pause the programme.

Of concern is that only 10% of the surveyed companies already have a clear view on the business implications of IFRS 17. It also revealed that 55% believe that IFRS 17 earnings/equity will be slightly or much more helpful than current GAAP earnings/equity, and 59% believe that the need for additional non-GAAP reporting/supplementary reporting will slightly or significantly increase.

Mr Ovsec said: “It is clear from our survey results that IFRS 17 will be challenging to deliver as well as signifying an uncertain future financial-reporting landscape.”

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