The Financial Reporting Council (FRC) has issued a revised version of FRS 103 Insurance Contracts and the accompanying non-mandatory implementation guidance, incorporating the amendments arising as a result of Solvency II that were issued in May 2016.
In the amended version, paragraph A4.2A, clarifies a legal requirement in reference to the Solvency II directive for large and medium-sized companies and groups (accounts and reports) regulations 2008 (SI 2008/410). The Department for Business, Energy and Industrial Strategy (BEIS) has confirmed that there is no requirement to change the accounting basis to be consistent with Solvency II.
The implementation guidance was produced based on material that was previously included in either FRS 27 Life Assurance or the Association of British Insurers’ Statement of Recommended Practice on Accounting for Insurance Business (ABI SORP).
The shareholders’ share of projected future bonuses deducted in accordance with paragraph 3.12(a) of FRS 103 should be calculated as the value of future transfers to shareholders based on market consistent financial assumptions. It also assumes that transfers take place at a level consistent with those assumptions used to calculate the realistic value of liabilities.
Where an explicit assumption is not required in order to calculate the liabilities then continuation of the current profit sharing arrangements should be assumed unless the insurance company has plans to change this approach.
The revised standard also has some editorial, typographical and presentational amendments.
