The fair value of liabilities under ifrs 4 phase 2 has been disputed globally. Probability weighted average of future cash flows, discounted and risk adjustment bba premium allocation csm approach onerous insurance contracts contracts insurance contracts ifrs 9. Under ifrs 17, the insurance contract will be recognised on 31 dec 2016, the premium due date, at the financial year end. The primary measurement model, called the building blocks approach bba, is the basis on which the reporting framework is built, and all future cashflows premiums, claims and costs in the contract boundaries are projected and discounted at the appropriate discount rate. Contract boundaries under ifrs 4 phase ii different to current accounting and solvency ii all annual insurance contracts is the coverage period one year or less. Iwgs proposals, which are developed through discussions among iwg members, have been reflected in iasbs tentative decisions. The iasb s standard objectives are to ensure highquality, understandable, enforceable and globally accepted principles which will improve transparency and comparability of insurers o nancial statements regardless of sector, geography or products. Taiwan insurers equity book value is much lower than that of eu insurers. Ifrs 17 introduces a fundamental change to existing. Ifrs 4 insurance contracts as revised in 2016 and marks the conclusion of the. Ifrs 4 applies to virtually all insurance contracts including reinsurance contracts that an entity issues and to reinsurance contracts that it holds. Implications of ifrs 17 10 comparability international standard currently, ifrs 4 phase 2 allows the use of local reporting standards better comparability is expected particularly for insurance groups cash and dividends expected mismatches between ifrs 17 economic perspective and statutory accounting historical perspective. Risk adjustments for insurance contracts book may 2018 hong kong equivalent of ifrs.
Implementation of ifrs4 phase ii technical and practical challenges richard olswang, prudential charles garnsworthy, pwc. For life insurers, even so the iasb has not yet discussed how insurance contract revenue for contracts with direct participation features will be determined, insurance contract revenue will be nowhere close to the currently. The ifrs foundations logo and the ifrs for smes logo, the iasb logo, the hexagon device, eifrs, ias, iasb, ifric, ifrs, ifrs for smes, ifrs foundation, international accounting standards, international financial reporting standards, niif and sic are registered trade marks of the ifrs foundation, further details of which are available from the ifrs. Participating contracts and update on key issues18 june 2015 adaptations for participating contracts iasb direction continued page interest expense in profit or loss current period book yield approach. This book describes the key elements of each accounting topic, how accounting information is to be disclosed, and where to look in the ifrs source documents for additional information. For contracts where the pricing of the premium does not include risks relating to future periods i. Now that the exposure draft for ifrs 4 phase ii has been published, insurance companies can get a better understanding of its implications and consider how they would need to adjust their insurance related balances. The changes to measurement introduced by ifrs 4 phase 2 will almost inevitably lead to changes in performance measurement.
We are close to a new ifrs insurance contracts accounting standard that will replace aasb 1023 and aasb 1038. Potential impacts of ifrs 4 phase ii on nonlife insurance. The ifrs foundations logo and the ifrs for smes logo, the iasb logo, the hexagon device, eifrs, ias, iasb, ifric, ifrs, ifrs for smes, ifrs foundation, international accounting standards, international financial reporting standards, niif and sic are registered trade marks of the ifrs foundation. Stop swiping, and start banging the easy way today. Reinsurers may need to adjust their offerings to meet the needs of cedants.
A change of the composition of the book in terms of. Efficient project management should build in phase ii awareness. Ifrs 17 replaces an interim standardifrs 4 insurance contracts. When it completes phase ii of the insurance contracts project, if any significant differences remain between current exit value and fair value, it might be necessary to consider retaining the expanded presentation. The international financial reporting standards foundation is a notforprofit corporation incorporated in the state of delaware, united states of america, with the delaware division of companies file no. Ergebnisbericht des ausschusses enterprise risk management. Insurers should consider how effective their existing reinsurance programme will be. In addition to solvency ii, which went live january 2016 in the european union, another regulation will soon change the face of the insurance industry ifrs 17 formerly known as ifrs 4 phase ii issued by the international accounting standards board iasb. With the overlay approach, the iasb tries to store the effect on profits resulting from ifrs 9 introduction in the other comprehensive income oci until ifrs 4. Ifrs 4 defines an insurance contract as a contract under which one party the. Ifrs 4 phase ii fundamentally rearranges international accounting of insurance contracts. Aug 12, 2018 another difference is that ifrs 4 allowed companies to use previous accounting policies whereas ifrs 17 has to be applied to all insurance contracts. General insurers should not ignore ifrs 4 phase ii october 2015.
Ifrs 4 ifrs 4 insurance contracts is issued by the. Ifrs 4 permits an expanded presentation for insurance contracts acquired in a business combination or portfolio transfer. For the insurance contract revenue, the epa applies the general principles of ifrs 15 revenue from contracts with customers. In 2010, the iasb released its first ifrs 17 back then referred to as ifrs 4 phase ii exposure draft. Product strategies under solvency ii and ifrs 4 phase ii. Sam f ocus helping insurers understand and manage change the international accounting standards board iasb is planning to publish a second exposure draft setting out its final proposals for ifrs additional contract liability 4 phase ii in the first half of 20. Phase 1completed in 2004 by issuing ifrs 4 insurance. Iasb has decided to provide additional transition relief for ifrs 9 upon adoption of ifrs 4 phase ii. Ifrs and solvency ii encourage comparability and transparency from a. A company can choose to apply ifrs 17 before that date but only if it also applies ifrs 9 financial instruments and ifrs 15 revenue from contracts with customers.
Contracts meeting the insurance contract definition of ifrs 4 phase ii no significant changes expected in comparison to phase i application standard applies to 1. Effective as of january 1, 2021, ifrs 17 insurance contracts replaces ifrs 4, the interim standard issued by the iasb in 2004. Appendix i solvency ii ifrs 4 phase ii comparison for contract liabilities. Pwc general insurers should not ignore ifrs 4 phase ii 3. Publication of the ifrs 4 phase ii insurance contracts standard is expected in 2016. Ifrs 4 insurance contracts phase ii revised ed interim aossg meeting 22 september 20, london agenda paper 6. In ifrs, the measurement of contracts will depend on classification as either insurance ifrs 4 or investment ias39 ifrs 9. Ifrs 4 phase ii comparison with solvency ii and mcev. One alternative is to provide 3 years between adoption of ifrs 9 and ifrs 4 phase ii. I hope that kpmgs illustrative presentation and disclosures in the new report opening the black box. Iwgs proposals, which are developed through discussions among iwg members. The agency recognises the significant limitations of phase 1 but believes that the enhanced disclosure and greater consistency at phase 1 of the insurance accounting project set out in ifrs 4 will aid in the analysis of insurers and is a useful stepping stone to the more valuable phase 2. The adoption of ifrs 4 means that companies will probably have to apply the.
Many concepts in ifrs 17 are new to many companies given that ifrs 4 focuses only on enhanced disclosures and does not prescribe the measurement of insurance contracts. The delay in drafting this standard reflects the divergent opinions expressed at different stages in the project, and the complexity of ensuring consistency with the corpus of standards. The ifrs guidebook solves this problem by condensing the key elements of ifrs into a single volume. Contents ifrs 4 background major issues covered in the first phase scope insurance contracts new definition contracts not recognised as insurance contracts income recognition changes in accounting policies waivers under ifrs 4 acquisition of insurance entities 3. The board sees phase i as a stepping stone to phase ii and is committed to. On the other hand, insurers will need to conform to the governance and control framework promulgated in the pillar 2 of solvency ii, in terms of policies. Change in book value of a group of contracts originated from. We also find that the value relevance of taiwan insurers equity book value. Ifrs 4 phase ii on general insurance reserving march 2015 iasb will decide at future meeting on effective date. Ifrs 4 phase ii ifrs 17 time to act roger simler, prashanth ariyam, naadira ebrahim deloitte glen daly hsbc 4 november 2016 agenda i. Society of actuaries in ireland ifrs 4 phase 2 exposure draft 2014. Implementation of ifrs4 phase ii technical and practical.
Ifrs 4 phase 2 exposure draft 15 january 2014 background key areas of the proposal worked examples comparison with solvency ii questions. However, a single contract, or even a single book of similar contracts, could. Ifrs phase 2 insurance contracts solvency ii expired unexpired unincepted probability weighted average of future cash flows, discounted plus risk margin bba. Overview of solvency ii joint iaca, iaahs and pbss colloquium in hong kong. In that case, any embedded derivative components and investment components are separated from the contract. The fair value of liabilities under ifrs 4 phase 2 has been disputed globally by. Interest expense on the insurance contract liability will be equal and opposite to investment income on the. Like ifrs 4, ifrs 17 considers financial reporting at contract level. Ifrs 4 phase 2 exposure draft 15 january 2014 background key areas of the proposal worked examples.
The original ifrs documents are lengthy and difficult to research. Ifrs 4 phase ii and solvency ii bridging the gap 1. Ifrs 4 phase ii objective is to deliver the first comprehensive ifrs on accounting for insurance contracts. Under ifrs 4 phase ii, the present value of future cash flows within the contract boundary plus the risk adjustment is. No consistency or transparency in the level of conservatism in estimates ifrs 4 phase 1 prohibits further increasing the level of conservatism in reserving, but does not require that a best estimate is used. Book description international financial reporting standards ifrs are used as the basis for financial reporting. The discount rate is set to reflect the investment return. The ifrs exempts an insurer temporarily until completion of phase ii of the insurance project from some requirements of other ifrss. Background a new ifrs standard for insurance contract accounting ifrs 4 phase ii or phase ii. A contract is recognized at the beginning of the coverage period 6 if it complies with the ifrs 17 insurance contract definition. Applying ifrs 9 financial instruments with ifrs 4 insurance contracts amendments to. The deferral approach will enable the insurance industry to apply ifrs 9 at a later stage, i.
A strict interpretation of the rules on contract boundaries would require a. Ifrs 4 profit reporting for south african life insurance. Ifrs 4 phase ii defines an insurance contract, and the classification of a contract depends on the level of insurance risk transferred to the insurer. Were disrupting the entire casual sex market place one bang at a time. Under ifrs 17 a reinsurance contract is defined as.
On 25 june 20, the international accounting standard board the iasb or the board published a revised exposure draft on the accounting for insurance contracts 20ed. General insurers should not ignore ifrs 4 phase ii. Challenges in implementing ifrs 4 phase ii zeb control. Ifrs 17 could probably qualify for an entry in a book of records. Insurance contract reporting under ifrs 17 zanders treasury. This new accounting model is based on a transparent approach that uses current measures and accounts for profit as insurers fulfill their obligations towards their policyholders. Justbang is ifrs 4 phase 2 contract boundaries in dating a venture funded startup that brings you the simple adultsonlyapp for like minded people to find sex. Ifrs 4 phase ii transition donna mceneaney michael leitschkis june 2015 1 in this briefing note we take a closer look at the proposed accounting standard for insurance contracts ifrs 4 phase ii and how insurance companies opening balance sheets will change at the transition date. Ifrs 17 previously referred to as ifrs 4 phase ii is expected to be issued in early 2017 with an effective date of 2021 a structured approach to ifrs 17 project planning will help. The text contains hundreds of practical examples that show. The taxing issue of ifrs 4 phase ii financial services. Insurance contract reporting under ifrs 17 zanders. Ifrs 4 phase ii for insurance contracts deloitte belgium.
Ifrs 17 introduces a fundamental change to existing insurance accounting practices for some companies. The key valuation principles in the proposals for measuring liabilities for insurance contracts in ifrs 4 phase ii and solvency ii are the same. Whilst the implementation date for the new ifrs for insurance contracts is not. A new ifrs standard for insurance contract accounting ifrs 4 phase ii or phase ii has been under development for 18 years and so reports of its approaching arrival might understandably be met with some scepticism.
Currently, ifrs 4 phase 2 allows the use of local reporting standards. Potential impacts of ifrs 4 phase ii on nonlife insurance accounting by adrian ruegg in audit, financial services, 09. Ifrs 4 phase ii and solvency ii bridging the gap 1 the iasbs standard objectives are to ensure highquality, understandable, enforceable and globally accepted principles which will improve transparency and comparability of insurers o nancial statements regardless of sector, geography or products. Required to disclose equivalent confidence interval. Kpmg ifrs 4 insurance contracts phase ii preparing for action nov 2015 milliman ifrs 17. Ifrs seminar series for regulators gdln 15 december 2010. Demystifying ifrs 4 phase 2 will help you develop your understanding of the complexity and consequences of the forthcoming insurance contract standards. Measurement model building block approach onerous contracts test 3. Introduction to ifrs 4 phase ii four key concepts for nonlife insurers 2. Accessibility certification knowledge base documentation sas books. 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. Even if the change to ifrs 4 phase ii does not directly result in a change, solvency ii may give rise to such a change by removing solvency i as the basis for local gaap or as the tax base itself. This may affect contracts previously classified under ias 39 or ifrs 9.
Ifrs 4 is an international financial reporting standard ifrs issued by the international. There are three significant ways in which the two differ. Text in gray boxes at the bottom of the slides contain updates from recent iasbfasb joint board meetings since the exposure draft. It is important to understand what these proposals are and the implications on your. The standard stipulates recognizing revenue when a performance obligation or service has been provided or transferred to the customer, which for insurance contracts. Ifrs 4 insurance contracts is an interim standard permits continuation of wide variety of practices includes a temporary exemption from general requirement that accounting policies should be relevant and reliable ifrs 4 does not provide transparent information about the effect of insurance contracts on financial statements. A major requirement will be to ensure that the organizations systems are flexible enough to factor in these differences in inputs to cash flows between solvency ii and ifrs 4 phase ii. Eleanor hill looks at the key differences between it and its predecessor, ifrs 4, and how the new standard will impact the insurance industry. The replacement standard, ifrs 17 was issued in may 2017 and will become effective on january 1, 2022, supplanting ifrs 4 at that time. Practical considerations pricing optimisation ifrs acronyms ifrs international financial reporting standards iasb international accounting standards board. Risk adjustment the methodology to determine the risk adjustment is not prescribed under ifrs 4 phase ii. At this meeting the iasb took a decision to amend ifrs 4 insurance contracts ifrs 4 to permit an entity to exclude from profit or loss and recognise in other comprehensive income the difference between the amounts that would be recognised in profit or loss in accordance with ifrs 9 and the amounts recognised in profit or loss in accordance.