released on 26 June 2019, based on feedback received from stakeholders1. The IASB has decided to defer discussions on the effective date of IFRS 17 until the extent and complexity of all the amendments has been determined, expected end of February 2020.
In addition to approving the adoption of six specific proposals in the ED for which there had been widespread support, the Board also agreed, after further consideration, to proceed with the proposed amendments in respect of deferring some acquisition costs for renewal business.
Comments on the ED highlighted ongoing concerns with the treatment of reinsurance contracts held, and the IASB has clearly recognised and sought to address the points raised. Following further analysis, the Board approved significant changes to the ED proposals in this area.
In the June ED, the IASB’s intention to allow insurers to recognise gains on reinsurance contracts held in respect of groups of onerous underlying contracts had been welcomed by respondents since it addressed a fundamental accounting mismatch in the original standard. However, most respondents, including Willis Towers Watson, expressed concerns that the scoping of the relief had been drawn too narrowly in restricting use to a very limited range of reinsurance contracts.
“It is imperative that both insurers and reinsurers analyse the specific impacts on their results, processes and overall implementation programmes.”
Roger Gascoigne
Senior Director at Willis Towers Watson.
In response, the Board has agreed to significantly broaden the scope so that all reinsurance contracts held, including both proportional and non-proportional, would be taken into account where they cover groups of onerous underlying contracts, allowing losses on initial recognition of the underlying contracts to be offset by the matching reinsurance. The calculation would change from one based on narrow contractual terms to one based on expected cash flows. Willis Towers Watson agrees that this also makes the treatment of reinsurance at initial recognition consistent with its subsequent measurement.
“If ultimately ratified and incorporated into the final standard, this change would largely address insurers’ concerns about the consequences of the existing economic mismatch,” said Roger Gascoigne, Senior Director at Willis Towers Watson. “Nevertheless, insurers should be aware that implementing these changes at this stage is likely to add significantly to the complexity of reflecting many current reinsurance or retrocession arrangements, particularly for contracts measured using the Premium Allocation Approach. It is imperative that both insurers and reinsurers analyse the specific impacts on their results, processes and overall implementation programmes.”
Brian Shea, Managing Director, Strategic and Financial Analytics at Willis Re commented: “The treatment of reinsurance under IFRS 17 has been deserving of greater attention for some time. These proposed amendments better reflect the role of reinsurance in mitigating risks. We continue to work with insurers and reinsurers to ensure that their reinsurance programmes are fit for IFRS 17.”
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