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IFRS 17 Proposed Amendments Summary

Core Content

The International Accounting Standards Board (IASB) has issued a proposed Exposure Draft (ED) titled "Amendments to IFRS 17" on 27 June 2019, outlining potential amendments and clarifications to the Insurance Contracts standard. The ED is part of a review process initiated in October 2018 to address concerns and implementation challenges raised by stakeholders following the issuance of IFRS 17.

Main Areas of Proposed Amendments

The proposed amendments cover eight specific areas of IFRS 17 and include several clarifications classified as annual improvements. These amendments aim to address practical implementation issues while maintaining the core principles of the standard.

Key Amendments

• Deferral of the Effective Date:
  The mandatory effective date of IFRS 17 is proposed to be deferred by one year, applying to annual periods beginning on or after 1 January 2022.

  • The temporary exemption from IFRS 9 under IFRS 4 is also revised to allow entities to continue applying it until 1 January 2022.

• Scope Exemption for Certain Loans and Credit Cards:

  • A new election is proposed for certain loan providers to apply IFRS 9 instead of IFRS 17 if the only insurance in the contract is for settlement of obligations. Examples include mortgages with death waivers, equity release/reverse mortgages, and student loans with income-contingent repayment.
  • Credit card contracts with insurance coverage are proposed to be excluded from IFRS 17 if the entity does not assess insurance risk at the individual customer level. These contracts would be accounted for under IFRS 9.

• Measurement Changes:
  Several measurement-related changes are proposed, including:

  • Allocation of insurance acquisition cash flows to anticipated future renewals, with a recoverability assessment for the recognised asset.
  • Attribution of the contractual service margin (CSM) to investment-related services.
  • Recognition of gain on proportionate reinsurance contracts when underlying contracts are onerous.
  • Change in balance sheet presentation from groups of contracts to portfolios of insurance contracts.
  • Extension of the risk mitigation option under the variable fee approach (VFA) to financial risks in reinsurance contracts.
  • Additional transition reliefs for contracts acquired and risk mitigation under the VFA.

Issues Not Being Amended

The IASB has decided not to propose amendments for the following issues:

• Level of aggregation
• Cash flows in the boundary of a reinsurance contract held
• Other comprehensive income option for insurance finance income
• Accounting estimates in interim financial statements
• Mutual entities issuing insurance contracts

Impact and Applicability

The proposed amendments will affect all jurisdictions that apply IFRS 17, as well as entities outside the insurance industry that issue insurance contracts, such as:

• Financial institutions offering loans with embedded insurance.
• Entities providing credit card contracts with insurance coverage.

Timeline and Next Steps

• Comment Period: Ends on 25 September 2019.
• Finalisation: The IASB aims to finalise the amendments in the second quarter of 2020.
• Effective Date: The revised effective date for IFRS 17 is 1 January 2022.
• Early Adoption: Entities that choose to early adopt IFRS 17 must apply the amendments simultaneously with the standard.

Additional Information

For more details on the proposed amendments, the Exposure Draft is available on the IASB website. A 'Snapshot' document also provides an overview of the process and proposed changes.
For further assistance, contact your local engagement team or the following PwC contacts:

• Gail Tucker (gail.l.tucker@pwc.com)
• Mary Saslow (mary.saslow@pwc.com)
• Gerda Burger (gerda.b.burger@pwc.com)
• Michael Marslin (michael.marslin@pwc.com)

Conclusion

The proposed amendments to IFRS 17 aim to address practical concerns and challenges while ensuring the standard remains effective and implementable. The deferral of the effective date and the scope exemptions are particularly significant for entities in the financial sector that issue insurance-linked contracts. The IASB is committed to a timely and focused standard-setting process.