The European Financial Reporting Advisory Group (EFRAG) has written to the IASB to highlight certain aspects of IFRS 17 Insurance Contracts that its research with insurers has indicated merit further consideration, which include possible unexpected costs in implementation
The comments are the result of an extensive case study with 11 large European insurance companies and a simplified case study with 49 participants, which EFRAG has undertaken as part of its work in preparation for a draft endorsement advice for the adoption of the standard.
The issues raised include concerns around acquisition costs related to costs incurred in expectation of contract renewals, and the impact of contractual service margin (CSM) amortisation on contracts that include investment services.
EFRAG also flagged up issues around reinsurance relating to onerous underlying contracts that are profitable after reinsurance, and the contract boundary for reinsurance contracts where underlying contracts are not yet issue.
Additional concerns related to the extent of the relief available during the transition to the new standard and challenges in applying the fair value approach, as well as questions about balance sheet presentation.
In the letter, EFRAG said it has not yet assessed the impact of these issues on the draft endorsement advice currently in preparation, but is happy to share its evidence with IASB, which has tentatively agreed small changes to the standard as part of its annual improvements project.
EFRAG letter on IFRS 17 insurance contracts: issues raised by constituents is here
Report by Pat Sweet
