2016年-_R0Q5R~7

IFRS 17 Summary: The Wait is Nearly Over?

Core Content

IFRS 17, previously referred to as IFRS 4 Phase II, is a new insurance contracts accounting standard expected to be issued in early 2017 with an effective date of 2021. It represents a significant shift in insurance accounting, introducing a more transparent and consistent approach compared to the current IFRS 4. The standard is designed to address the lack of comparability across insurance entities due to varying accounting policies.

Main Points

• Effective Date: IFRS 17 is expected to take effect in 2021.
• Complexity: The standard is complex, requiring a fundamental change in liability measurement and profit recognition.
• Building Blocks Approach (BBA): This is the general model used in IFRS 17, based on a discounted cash flow model with risk adjustments and a Contractual Service Margin (CSM).
• Contractual Service Margin (CSM): A key element of IFRS 17, CSM represents the unearned profit and is amortized over the contract term.
• Profit Recognition: Changes in cash flows and risk adjustments related to future services are recognized in the CSM, while those related to past and current services are reflected in the profit and loss (P&L).
• Discount Rates: The effect of changes in discount rates can be recognized in Other Comprehensive Income (OCI) or P&L, depending on the policy choice.

Key Features of IFRS 17

• Discounted Cash Flow Model: Incorporates risk adjustments and is market-consistent.
• No Day One Profits: Profits are deferred and amortized over the contract term.
• New Income Statement Presentation: Introduces a new definition of revenue.
• OCI Option: Allows for the recognition of changes in discount rates in OCI to reduce P&L volatility.
• Transition Approach: Provides simplifications and allows for certain judgments during the transition period.
• More Transparent Disclosures: Enhances transparency in financial reporting.

Types of Insurance Contracts Covered

• Long-term and Whole Life Insurance
• Protection Business
• Inflation-Linked Annuity Contracts
• Immediate Annuities
• US Style Universal Life and Fixed Annuities
• Reinsurance
• Certain General Insurance Contracts
• Short-term General Insurance
• Unit-Linked Contracts
• US Variable Annuities
• Equity Index-Linked Contracts
• Continental European 90/10 Contracts
• UK With Profits Contracts

Key Challenges

• Implementation Timeline: Some insurers suggest that three years may not be sufficient for full implementation.
• Year End Reporting: Adjustments to reporting timelines may be necessary due to the complexity of IFRS 17.
• Policy Choices: Insurers will need to make decisions on the use of OCI and the simplified model (PAA) for short duration contracts.
• Resource Planning: A significant amount of internal and external resources will be required, especially in finance, actuarial, and risk management.
• Data Requirements: Insurers must shift to a more granular and retrospective approach in data collection and analysis.
• Market Expectations: Managing investor and analyst expectations is crucial, as the standard is more complex than anticipated.

Industry Activity and Next Steps

• Education and Awareness Training: Tailored to current products and IFRS 17 implications.
• Impact Assessment: Essential for understanding the financial and operational implications.
• Project Planning: Involves setting a roadmap, resource planning, and budgeting.
• System and Data Impact Assessments: Critical for IT architecture, actuarial modeling, and financial reporting systems.
• Policy Choices: Consideration of the impact on tax positions and other financial metrics is important.

Recommendations

• Early Planning: Insurers should begin planning early to secure budgets and resources.
• Gap Analysis: Identify gaps between current and future systems, processes, and data requirements.
• Collaboration: Engage with internal teams and external consultants to ensure a comprehensive approach.
• Lobbying for Tax Rules: Consider advocating for special tax rules to accommodate the new standard.

Contact Information

• Alex Bertolotti - Global IFRS Insurance Leader
  T: +44 (0)20 7213 1253
  E: alex.bertolotti@uk.pwc.com

• Kirsty Ward - Partner - Accounting
  T: +44 (0)20 7804 2999
  E: kirsty.a.ward@uk.pwc.com

• Graham Oswald - Director - Actuarial
  T: +44 (0)20 7804 7373
  E: graham.oswald@uk.pwc.com

• Gail Tucker - Partner - Accounting
  T: +44 (0)20 7212 3867
  E: gail.l.tucker@uk.pwc.com

• Dominic Veney - Partner - Actuarial
  T: +44 (0)20 7804 3573
  E: dominic.veney@uk.pwc.com

• Tom Brown - Partner - Finance and Technology
  T: +44 (0)20 7804 0722
  E: tom.r.brown@uk.pwc.com

Disclaimer

This publication is for general guidance only and does not constitute professional advice. PwC does not accept or assume any liability for the use of the information contained in this publication.