In transition - the latest on IFRS 17 implementation - May 2019

Publication date: 16 May 2019

adobe_pdf_file_icon_32x32PwC In transition - IASB agrees to a 90 day comment period on the Exposure draft on amendments to IFRS 17

In addition to agreeing to a shortened comment period for the exposure draft, the IASB revised the scope of its previously proposed amendment for contracts with investment return services and discussed a few other sweep issues related to IFRS 17

At a glance

At the 15 May 2019 IASB meeting, the Board considered some additional amendments to IFRS 17.These related to ‘sweep issues’, which are issues that have arisen after the Board’s main deliberations and that need to be clarified by the Board in a public meeting.

The IASB agreed

  • to extend the scope of its tentative decision from the January 2019 meeting related to amortisation of the contractual service margin for contracts that include an investment return service. The Board agreed to propose that such services could, in certain situations, also be present in the absence of an investment component;
  • to propose two minor clarifications relating to revenue disclosures and presentation;
  • to retain the current description in the Basis for Conclusions related to mutual entities; and;
  • to a 90 day comment period for the forthcoming exposure draft of f amendments to IFRS 17. The exposure draft is expected to be published at the end of June 2019.

The views in this In transition are based on our observations from the 15 May 2019 meeting, and they might differ in some respects from the official report of the meeting that will be published by the IASB in the IASB Update at a later date.


Publication date: 16 May 2019

1. Since the issuance of the standard, IASB established a transition resource working group (TRG) to provide a public forum for stakeholders to follow the discussion of questions raised on implementation of the new standard. In addition both the IASB staff and IASB Board members have been engaged in a variety of activities with stakeholders to follow the implementation of IFRS 17. At the IASB meeting on 24 October 2018, the Board agreed to explore potential amendments to IFRS 17 based on a list of implementation issues and concerns compiled by the staff. The Board noted that the criteria set a high hurdle for change, and any amendments suggested would need to be narrow in scope and deliberated quickly to avoid significant delays in the effective date.

2. From October 2018 to April 2019 the IASB evaluated the reported concerns and implementation challenges against the criteria for potential amendments, both on an individual basis and, in April 2019, as a whole. The staff noted that as part of this, both staff and the Board have reviewed possible approaches to dealing with the concerns and implementation challenges. In total, the process has resulted in 12 proposed narrow scope amendments in 8 different areas of IFRS 17 in addition to several clarifying amendments that are classified as annual improvements. These latter amendments are minor changes that clarify the words in a standard or correct relatively minor unintended consequences, oversights, or conflicts between existing requirements in a standard.

Items discussed during the May IASB Board meeting

Publication date: 16 May 2019

3. The following topics related to insurance contracts where considered by the IASB in the meeting:

Staff paper Description IASB Decision
02A - Summary of the April TRG meeting IASB summary of the Transition Resource Group for IFRS 17 Insurance Contracts meeting held on 4 April 2019 Not applicable
02B - TRG Submissions Log as at 22 March 2019 Submissions Log as at 22 March 2019 for all issues submitted to the Transition Resource Group for IFRS 17 Insurance Contracts Not applicable
02C - Sweep issues The Board was asked to consider additional issues that have arisen before finalising the Exposure Draft of proposed amendments to IFRS 17. The board revisited the scope of the previously proposed amendments on investment return services and 3 other items. Amend the previously agreed scope of when an investment return service can be present and clarify 2 other areas of IFRS 17
02D - Comment period for the forthcoming exposure draft The Board was requested to set a comment period of 90 days for the forthcoming Exposure Draft of proposed amendments to IFRS 17 The Board agreed on a 90 day comment period

April 2019 TRG update

4. The IASB staff noted that some of the topics discussed by the TRG in April to some extent already had been considered by the Board in its April 2019 meeting. The IASB staff noted that no further TRG discussions were scheduled, although constituents could submit additional issues for consideration if they believe they meet the TRG submission criteria. It was noted that any stakeholder comments related to the proposed amendments should be included in their comment letters on the exposure draft.

Sweep issues

5. The staff identified four sweep issues for this meeting. A sweep issue is a technical matter identified during the balloting of a document that needs to be resolved by a discussion by the IASB or the Interpretations Committee in a public meeting.

Investment return service

6. The IASB agreed to revisit its previous decision relating to when an investment return service can be present. In January 2019 the IASB tentatively decided that, for insurance contracts for which an entity provides an investment return service, the contractual service margin (CSM) should be recognised in profit or loss on the basis of coverage units that are determined by considering both insurance coverage and investment-return service. The Board then agreed that an investment return service was only present when the contract includes an investment component, as defined in the Standard. However, staff noted that in certain instances, investment return services might be provided even when a contract did not have an investment component as defined in the Standard. One example in the staff paper is a deferred annuity contract where premiums are paid upfront and during the accumulation phase a return is earned . During that phase, the policyholder has the right to transfer the accumulated amount to another annuity provider or to receive the accumulated amount if he dies. The accumulated amount can be converted into an annuity at a fixed conversion rate at a future date. After conversion into an annuity, there is no period of guaranteed payments. That is,if the policyholder dies after conversion but before the first annuity payment, he receives nothing. As a result, there is no investment component because the policyholder does not receive repayment of the premium in all circumstances.

7. In its May 2019 meeting the IASB agreed that investment return services also could be present when an investment component does not exist. The IASB staff proposed that the standard should specify that an investment-return service exists if, and only if:

  1. there is an investment component, or the policyholder has a right to withdraw an amount;
  2. the investment component or amount the policyholder has a right to withdraw is expected to include a positive investment return; and
  3. the entity expects to perform investment activity to generate that positive investment return.

IASB staff noted that TRG members had been asked to comment on the sweep issue in advance of the Board meeting, and that their response mainly welcomed the amendment but some clarifications had been requested.

8. Several IASB members expressed concern that the proposal might appear to define a set of criteria that would be determinative that an investment service existed, whereas at the January meeting the Board had decided that judgement is required to determine whether an entity provides an investment return service where an investment component exists. One member asked whether reflecting just time value of money was enough to be a positive investment return, and the staff noted they had been discussing whether the standard should give more guidance and proposed not to . Several IASB members further questioned the meaning of a ‘positive investment return’ and suggested that it be clarified, preferably in the body of the revised Standard as opposed to the Basis for Conclusions. Specifically, members suggested it should be clarified that ‘positive’ should be viewed as a relative term (i.e. a positive benefit to the policyholder) rather than an absolute term. For example in a negative interest rate environment, a positive return might be a return that is less negative than returns available elsewhere considering the economic environment. It was agreed that IASB staff should consider the feedback from the Board in its drafting of the ED.

Other clarifications to insurance revenue

9. The IASB also agreed to propose clarifications for two of the other sweep issues:

  • Paragraph 103 of IFRS 17 currently requires an entity to separately disclose—in the reconciliation from the opening to the closing balances of the insurance contract liability — investment components excluded from insurance revenue and insurance service expenses. The amendment will revise the requirement to disclose “investment components (and refunds of premiums unless presented as part of the cash flows in the period) excluded from insurance revenue and insurance service expenses.” That is, an entity is not required to separately distinguish between the amount of a premium refund and an investment component that is excluded from revenue and expense. Stakeholders had expressed concern that it would be difficult to determine what amount of a repayment to a policyholder represents a refund of premium versus an investment component.
  • An amendment related to insurance revenue, to clarify that changes resulting from cash flows of amounts lent to policyholders and waivers of amounts lent to policyholders are excluded from insurance revenue since paragraph B123 currently is silent on how such amounts are treated.

Mutual entities

10. The IASB agreed not to amend the Basis for Conclusions related to mutual entities issuing insurance contracts, despite several requests to do so. Instead, the staff will consider including a footnote to the paragraph within the Basis for Conclusions to IFRS 17 noting that different definitions of mutual entities might be applied in practice, and that some entities that are described as mutual entities may not be required to pay all residual returns to policyholders.

11. In some paragraphs in the Basis for Conclusions of IFRS 17 it is noted that for a mutual entity the most residual interest of the entity is owed to policyholders and not shareholders. Consequently those cash flows are part of the fulfilment cash flows and normally there would be no equity for such entities. Stakeholders have noted that such presentation in their mind would not depict the economic reality in certain fact patterns. One Board member noted that in certain situations not all proceeds will go to policyholders due to capital requirements from regulators, and that in this situation the accounting should be clarified.

12. Some Board members expressed sympathy for the stakeholder’s concerns acknowledging that there might be different variations of mutual entities as noted above, and therefore agreed with the suggestion to add a footnote to this effect. Other Board members noted that making any further changes to the wording in the Basis for Conclusions may lead to an incorrect interpretation of the requirements of the standard. The Board emphasised that one of the main objectives of IFRS 17 is to account for insurance contracts based on their features, regardless of the characteristics of entity which issues them. Therefore, they did not believe any further changes to the Basis for Conclusions were warranted.

90 day comment period for the forthcoming exposure draft -of amendments to IFRS 17

13. Board members agreed that the comment period for the forthcoming exposure draft should be 90 days, versus the normal 120 days, given that the targeted amendments are both urgent and narrow in scope. The IASB staff noted that approval for the shortened exposure period was granted from the Due Process Oversight Committee in April. The staff paper notes that the 90 day comment period balances the need to allow sufficient time for stakeholders to consider and respond to the targeted amendments with the need to provide clarity about the proposed amendments on a timely basis. This 90 day period is consistent with the comment period for the narrow scope amendments in IFRS 15. The staff paper further notes that a 90 day period would minimise disruption, as it would facilitate the issuance of the amendments to IFRS 17 in the second quarter of 2020 and thereby allow sufficient time until the proposed effective date of 1 Jan 2022.

Next steps

Publication date: 16 May 2019

14. The staff will continue the process of drafting an exposure draft on the amendments including the annual improvements to IFRS 17.

15. The previously communicated timeline has not changed, and the staff expect to publish an exposure draft of proposed amendments to IFRS 17 at the end of June 2019.

PwC has developed the following publications and resources related to IFRS 17, ‘Insurance Contracts’: Authored by:

PwC clients who have questions about this In transition should contact their engagement partner

Gail Tucker
+44 (0) 7712 489634

Mary Saslow
Managing Director
+ 1 860 241 7013

Lars Jorgensen
Senior Manager
+44 (0) 7710 036926

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