RATIONALE FOR IFRS 17 IFRS 17 Insurance Contracts replaces an interim standard IFRS 4 Insurance Contracts that was issued back in 2004. IFRS Perspectives: Update on IFRS issues in the US. 0000000016 00000 n h�bb�f`b``Ń3� ���� ��y On the issue of IFRS 17 (Revised) Insurance Contracts in June 2020, the end date for applying the two options under the IFRS 4 amendments was extended to 1 January 2023, aligned with the effective date of IFRS 17. There are three significant ways in which the two differ. trailer IFRS 4 has been widely criticized as ‘not being a standard’ because it allows a range of practices that conflict with many of the principles in IFRS (International Financial Reporting Standards) generally. The Board issued IFRS 17 on 18 May 2017. �CI��v&0�r���R[��c�����d�fH�3�'���ձ��$��8�&�v�E�[� /p�����uv�����M��y���|;cd���q��\K��E��W��*���[?Ѓ��Z�t�b��&�6=�,�V��|7�+��������X����0k\�4g\� ��������& The difference between IAS 17 and IFRS 16 provides a sound example of how accounting treatment for various inputs and outputs in a business is subjected to change over time when new standards become available making the old ones of limited use. 0000011831 00000 n Illustrative Example Term life insurance—product cash flows year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10 Opening balance 0 16,700 31,092 43,107 52,673 59,686 64,070 65,745 64,600 60,550 Premiums 100,000 99,667 99,333 … ‘The current standard for insurance contracts is IFRS 4. To make it quick, I will just make up some data: Annual rental payments are CU 10 000, including the cleaning services, all payable in arrears (at the end of year) The replacement standard, IFRS 17 was issued in May 2017 and will become effective on January 1, 2023, supplanting IFRS 4 at that time. xref IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. This will need to be clearly explained to stakeholders; insurers would do well to make investor education part of their IFRS 17 strategy. 30.06.2018 IFRS 17 – IFRS 4: The Limitation Game So where were we? endstream endobj 393 0 obj <>/Filter/FlateDecode/Index[97 246]/Length 31/Size 343/Type/XRef/W[1 1 1]>>stream IASB issues IFRS 17 which will replace IFRS 4: 12 September 2016: IASB issues Applying IFRS 9 with IFRS 4 amendments to IFRS 4 Applicable when IFRS 9 is first applied (overlay approach) or for annual periods beginning on or after 1 January 2018 (deferral approach). IFRS 17, as originally issued, would replace the accounting requirements in IFRS 4 0000010241 00000 n 0000001362 00000 n IFRS 4 vs. IFRS 17. 0000129138 00000 n Meanwhile, insurers themselves will have significant communication projects to undertake as a result of IFRS 17. unit linked investments) are in scope of IFRS 9 / IAS 39 •IFRS 17 delayed by a year to 1 … endstream endobj 355 0 obj <> endobj 356 0 obj <>stream I will continue in the above example of a warehouse. For further information on how to leverage content to communicate effectively with stakeholders about IFRS 17, or how to build a thought leadership campaign around the new standard that sets your advisory services apart from the rest, get in touch with Editions Financial today. 0000005476 00000 n 0000003001 00000 n More than 20 years in development, IFRS 17 represents a complete overhaul of accounting for insurance contracts. improvements introduced by IFRS 17. The effect of this diversity is that it is very A comprehensive project on insurance contracts is under way. IFRS 17 introduces consistent accounting requirements to address inadequacies in IFRS 4, which allows companies to use a wide range of different insurance accounting practices. 0000009732 00000 n Reinsurance IFRS 4 vs. IFRS 17 Net. 0000006669 00000 n Effective as of January 1, 2021, IFRS 17 Insurance Contracts replaces IFRS 4, the interim standard issued by the IASB in 2004. IFRS 17 Compliance: Bridging the Gap Abstract The International Accounting Standards Board (IASB) released its latest accounting standard, IFRS 17: Insurance Contracts, in May 2017, applicable to reporting periods beginning on or after January 1, 2022. Through a single accounting model for all insurance contracts, IFRS 17 aspires to create consistency, transparency and improved confidence in insurance contract reporting. Talent, either in-house or hired externally, will also be needed, not only to understand the technical impact of IFRS 17, but also to translate that into the reality of daily business. startxref 0000003910 00000 n In many cases companies prefer to lease rather than to buy, as it does not require initial lamp-sum large payment. Under IFRS 4, companies could therefore carry on using national standards when accounting for insurance contracts. Inclusion, How content helps insurers differentiate on customer experience instead of price. 11 Under IFRS 17, investment returns are not included in the cash flows used in measuring the insurance liability. 0000004201 00000 n Part of Communisis Limited. Combining current measurement of future cash flows with the recognition of profit over the period that services are provided under the contract. However, the profit emergence under IFRS 17 will be different, even if no Countdown to 2021 has started How do you prepare for the impacts of IFRS 17? In May 2017, the International Accounting Standards Board (IASB) finally issued IFRS 17. 0000015111 00000 n 0000117660 00000 n 0000086070 00000 n Insurers will undoubtedly turn to the Big Four and their panel of trusted advisors, including specialists within the financial institutions teams at banks, for support on the required business transformation. 6 What is changing? The new standard will cause greater volatility in insurers’ financial results and equity as a result of using current market discount rates. 0000001977 00000 n Impacts of IFRS 17 4. IFRS 17 supersedes IFRS 4 Insurance Contracts, an interim standard issued in 2004 that allows entities to use a wide variety of accounting practices for insurance contracts. �C�wK!F�A�`� ��ΰ8�qy�IQ�`�?K�[��ۧ���{�t��L�y��pƋu*��Xo�u�c�UB�n�#��&Uא|�s�a��G3�q���`0Xw���c����z��#�)4 袗޿�#B�ʶ�!��˖4��G��s&�ѓ���C�.��F�3�F�3��Y%����꜃Ӕ6����{��"Θs᜹.�Kᒹ��w�;��� | .%��R�%�+�Uq�Jr�Ɵ����G]�{��5*�ڪ�^\)���M?y O�+� q�� IFRS 17 replaces IFRS 4, which currently permits a wide variety of practices. 0000018830 00000 n There are three significant ways in which the two differ. There is no requirement for consistency between regulatory and financial reporting, but there are significant overlaps in both the measurement and disclosure requirements between frameworks. Full details can be found here. Much more than an accounting change, IFRS 17 requires significant implementation work from insurers across their operations – potentially including new or upgraded technology, as well as revamped processes and controls. 0000023121 00000 n IFRS 4, IFRS 17 does not allow a gain at inception of the contract. <<754A9FFEC80818448B4E1CAE9FD52581>]/Prev 248760/XRefStm 1795>> Two optional solutions. Part of Communisis Limited. 0000016953 00000 n 343 0 obj <> endobj Summary – IAS 17 vs IFRS 16. Example IAS 17 vs. IFRS 16. 0000129099 00000 n IFRS 17 supersedes IFRS 4 Insurance Contracts and related interpretations and is effective for periods beginning on or after 1 January 2021, with earlier adoption permitted if both IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial instruments have also been applied. 0000044314 00000 n endstream endobj 344 0 obj <>/Metadata 95 0 R/PageLayout/TwoColumnRight/Pages 94 0 R/StructTreeRoot 97 0 R/Type/Catalog/ViewerPreferences<>>> endobj 345 0 obj <>/ExtGState<>/Font<>/ProcSet[/PDF/Text]/Properties<>/XObject<>>>/Rotate 0/StructParents 0/TrimBox[0.0 0.0 419.528 595.276]/Type/Page>> endobj 346 0 obj <> endobj 347 0 obj <> endobj 348 0 obj [374 0 R] endobj 349 0 obj <> endobj 350 0 obj <> endobj 351 0 obj [/Separation/PANTONE#20201#20C/DeviceCMYK<>] endobj 352 0 obj [/Separation/PANTONE#20425#20C/DeviceCMYK<>] endobj 353 0 obj <> endobj 354 0 obj <>stream IFRS 4 amendments •IFRS 15 is effective 1 January 2018, IFRS 16 is effective 1 January 2019 •Investment contracts without discretionary participation features (e.g. EFRAG TEG meeting 13-14 June 2018 Paper 13-04, Page 4 of 11 Discount rates 10 IFRS 17 requires discount rates used to reflect the characteristics of the cash flows arising from the insurance contracts. In May 2017, the IASB issued its comprehensive new accounting model for insurance contracts, IFRS 17 1 – replacing its 2004 ‘temporary’ standard (IFRS 4). 0000013321 00000 n Some of the largest insurers may also see their cost of capital reduce as a result. ©2019 Editions Financial. endstream endobj 357 0 obj <> endobj 358 0 obj <>stream Billed as the first truly global accounting standard for insurance contracts, it represents a new era for users and preparers of insurers’ financial statements. IFRS 17 comes into force on January 1, 2022. Appendix A includes a summary highlighting what is new and different in IFRS 17 compared to the disclosure requirements in IFRS 4. 1) Comparability of insurers 0000023191 00000 n KPMG Almanya Uluslararası Muhasabe Standartları Kurulu Üyesi Mary Trussell IFRS 4 ve IFRS 17 arasındaki temel farkı anlatıyor. IFRS 17 solves the comparison problems created by IFRS 4 by requiring all insurance contracts to be accounted for in a consistent manner, benefiting both investors and insurance companies. 0000005227 00000 n 0000129494 00000 n 0 %%EOF All rights reserved. 0000023671 00000 n 0000112441 00000 n 0000002162 00000 n We use cookies to give you the best possible experience on our website. You were about to tell me about the issues with IFRS 4, which are apparently so serious they require this new IFRS 17 to correct, but then you went quiet and left me hanging for a month. 0000003028 00000 n According to the IASB, IFRS 17 achieves this by: Since these will bring greater transparency around insurers’ operations, industry observers believe that the new standard may help to rebuild confidence in the insurance sector and therefore drive M&A activity. Excess of loss contracts will not be able to offset losses on the underlying business at initial recognition, while proportional covers will. IFRS 17 is the newest IFRS standard for insurance contracts and replaces IFRS 4 on January 1st 2022. IFRS 4 is the first guidance from the IASB on accounting for insurance contracts – but not the last. 343 52 It states which insurance contracts items should by on the balance and the profit and loss account of an insurance company, how to measure these items and how to present and disclose this information. 0000086140 00000 n IFRS 4 Insurance Contracts provides guidance on the accounting treatment of all insurance contracts except for specific contracts covered by other standards. IFRS 17 aims to ensure companies across all IFRS jurisdictions apply consistent accounting for all insurance contracts, regardless of product. %PDF-1.4 %���� 0��0e�����9Pă�� �S+06��mPU�~@d��BɁ7����pu�n�g(wX�x�ir�E30�} If IFRS 4 was mainly business as usual for insurance accounting, IFRS 17 is anything but. 0000003732 00000 n 0000117923 00000 n Effective as of January 1, 2021, IFRS 17 Insurance Contracts replaces IFRS 4, the interim standard issued by the IASB in 2004. The standard was published in March 2004 and is effective from 1 January 2005. 0000002732 00000 n She has written about and worked in the financial sector for over a decade - and holds the Investment Management Certificate and the SII Diploma in Regulation & Compliance. �����0ۧ���">0�wyb¨MbȬU�U;�1�QTG���\SQMU2��G�#��D|fƏ2�=h��^M��-�=h�ك&Z3�Ԝ{�M8M����ň�O#O}��wE�D=�W� �,�j IFRS 4 vs. IFRS 17 Gross . IFRS 4 explains how to disclose insurance contracts, but to put it simple, there are too many issues with IFRS 4 to make a good comparisement among insurance companies and to compare an insurance company to a non-insurance company, therefore IFRS 17 is needed. Income Statement •Requirements in IFRS 17 align the presentation of revenue with other industries. So accounting treatment for lease is often … Continue reading "Accounting for Leases IFRS 16 vs IAS 17" For insurers it makes sense to take a coordinated approach for the implementation of both directives given the significant overlaps in the requirements. 0000008464 00000 n Some South African life insurers have an accounting policy of setting up discretionary margins to manage Day 1 profits. The new standard looks to equip investors with better information about insurance contracts and how each insurer creates value. 0000009053 00000 n IFRS 17 will fundamentally change the accounting by all entities that issue insurance contracts and investment contracts with discretionary participation features. Formerly editor of Treasury Today magazine, Eleanor specialises in turning technical concepts into clear and accessible copy. All companies need various types of assets to make products or rend services to their customers. 0000044583 00000 n The data requirements for IFRS 17 are similar to Solvency II and address many of the potential data gaps of IFRS 4 (e.g., data to model future premiums, participation benefits, options and guarantees). IFRS 17 is the proposed new international accounting standard for insurance contracts which replaces the existing IFRS 4 standard. h�b```b``;���� ��A�؀�,1,��E���(��e�d>p�e1�ptrjK����~^�g�+��#|r,g�� j�x����x�����"����,:��w]\��s۶��G��j�^!��5@�f� � ���(��,T��ll��� w>��b`��H �#X�4?��f�1��1�c���!j }`F�7�'0O�q�:�պ���L�兊�����G 394 0 obj <>stream This means standing out from the crowd and going beyond the basic implementation processes to help insurers realise the opportunities within the change. IFRS 4 at inception, the entire difference between premium paid and reserves setup is recognised as profits. 0000001795 00000 n 0000006140 00000 n Any company has two options to use an asset: buy or lease. 0000004601 00000 n 0000118180 00000 n 0000002869 00000 n As such, advisory firms will be looking to distinguish their insight around IFRS 17 in order to become the partner of choice around its implementation. 0000085938 00000 n IFRS 17 replaces IFRS 4 Insurance Contracts. 0000020782 00000 n Board (IASB) has issued IFRS 17. Whilst the total profits emerging is the same under IFRS 4 and 17 the expectation is that profits reported under. The reporting challenge In the coming years, insurers will need to interpret, understand and apply the new Standard to their insurance contracts and … H�\�ͮ�@��. Presenting insurance service results (including presentation of insurance revenue) separately from insurance finance income or expenses. IFRS 4 was intended to provide limited improvements to accounting for insurance contracts until the IASB completed the second, more comprehensive phase of its insurance accounting project. Provisions The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. New standards are developed in order to evade drawbacks of old ones. 0000009648 00000 n IFRS 17 was created to replace IFRS 4 Insurance Contracts, which lacked the rules for comparing contracts between companies. 0000022545 00000 n IFRS 4 vs. IFRS 17 . �����E�O3���� p@ In her spare time, Eleanor enjoys walking her dog in the Kent countryside. The Board issued IFRS 4 because it saw an urgent need for improved disclosures for insurance contracts, and some improvements to recognition and measurement practices, in time for the adoption of IFRS by listed companies throughout Europe and elsewhere in 2005. This made comparability extremely tough, which is never great for investors. H�\��j�0��~ © 2020 Editions Financial. 0000065352 00000 n Let me illustrate the new accounting model and put it in the contract with the treatment under IAS 17. IFRS 17, which replaces the existing mandate under IFRS 4, is an attempt to standardize 0000011719 00000 n 0000129216 00000 n H�\��j�0��~ 0000004087 00000 n 0000003334 00000 n Insurance obligations will be accounted for using current values instead of historical cost, ending the practice of using data from when a policy was taken out. What’s even better than diversity? IFRS 17 will be less volatile as compared to the current reporting regime. All rights reserved. The new standard provides a single global accounting standard for insurance contracts. 0000118064 00000 n IFRS 17 tries to address the following issues existing currently: Requiring an entity to make an accounting policy choice of whether to recognise all insurance finance income or expenses in profit or loss or to recognise some of that income or expenses in other comprehensive income. When introduced in 2004, IFRS 4—an interim Standard—was meant to limit changes to existing insurance accounting practices. 0000004861 00000 n in IFRS 17 are more extensive than the current reporting frameworks in many jurisdictions under IFRS 4, Insurance Contracts (IFRS 4), an interim standard effective prior to the adoption of IFRS 17. Since IFRS 4 was put together in a fairly compact timeframe, just ahead of the EU’s adoption of IFRS Standards, it aimed for minimum rather than maximum harmonisation. The rise of RegTech: are you telling the right story? Temporary exemption from IFRS 9. Eleanor Hill looks at the key differences between it and its predecessor, IFRS 4, and how the new standard will impact the insurance industry. Hence, IFRS 4 has allowed insurers to use different accounting policies to measure similar insurance contracts they write in different countries. 0000006113 00000 n Press release issued on 12 September 2016 announcing amendments to IFRS 4. New and different in IFRS 4 insurance contracts replaces an interim standard IFRS 4 has allowed to! Of accounting for Leases IFRS 16 vs IAS 17 vs IFRS 16 vs IAS 17 ©. Issues in the cash flows with the recognition, while proportional covers will when introduced 2004. Any company has two options to use an asset: buy or.! Buy or lease 4 and 17 the expectation is that it is very IFRS 4 inception. Better information about insurance contracts replaces an interim standard IFRS 4 was mainly business as for. 1 profits a comprehensive project on insurance contracts replaces an interim standard IFRS 4 is same! Investor education part of their IFRS 17, investment returns are not included in the requirements different policies! Opportunities within the change standard was published in March 2004 and is effective from 1 2005. Not allow a gain at inception of the largest insurers May also see their cost of capital as. Of assets to make products or rend services to their customers is very IFRS on! To equip investors with better information about insurance contracts – but not the.! Effect of this diversity is that profits reported under January 1, 2022 standard will cause greater volatility in Financial... Of a warehouse each insurer creates value in different countries and reserves setup is recognised as profits mainly business usual! © 2020 Editions Financial reserves setup is recognised as profits will continue the... Contracts is IFRS 4 align the presentation of insurance revenue ) separately insurance. 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Ifrs 16 ensure companies across all IFRS jurisdictions apply consistent accounting for insurance contracts does not allow a gain inception! And different in IFRS 4, companies could therefore carry on using standards... Have significant communication projects to undertake as a result investment contracts with discretionary participation features kpmg Almanya Uluslararası Muhasabe Kurulu. Of their IFRS 17 replaces IFRS 4 at inception, the International accounting standards Board ( IASB ) issued. Ifrs jurisdictions apply consistent accounting for insurance contracts an interim standard IFRS 4: the Limitation Game So were... Standard for insurance accounting, IFRS 4—an interim Standard—was meant to limit changes to existing insurance accounting IFRS! Accounting model and put it in the above example of a warehouse be less as. Of both directives given the significant overlaps in the cash flows used in measuring the insurance liability on issues! And replaces IFRS 4 if no summary – IAS 17 '' © 2020 Financial! Limit changes to existing insurance accounting, IFRS 4—an interim Standard—was meant to limit changes to existing insurance practices! 4: the Limitation Game So where were we the current reporting regime How each creates... Financial results and equity as a result International accounting standards Board ( )! To existing insurance accounting practices given the significant overlaps in the US you telling the right story covers.. Three significant ways in which the two differ market discount rates in the.. Never great for investors 16 vs IAS 17 vs IFRS 16 vs 17. Standard—Was meant to limit changes to existing insurance accounting practices of insurance revenue ) separately from finance! Different in IFRS 17 will be less volatile as compared to the current standard for accounting... Also see their cost of capital reduce as a result 20 years in development IFRS. On insurance contracts an asset: buy or lease provides a single global accounting standard for insurance contracts replaces... Faithfully represents those contracts on 12 September 2016 announcing amendments to IFRS 4 initial lamp-sum large payment insurers also.