4. The TRG discussed amortisation of the contractual service margin (CSM) for contracts that qualify for the variable fee approach (VFA) at its meeting on 2 May 2018 (see INT 2018-02). It was agreed that the coverage period should include the period over which investment services are provided in addition to the insurance coverage period. This is because IFRS 17 acknowledges that such contracts ‘are substantially investment-related service contracts’, and this perspective is fundamental to the requirements of the VFA and to its scope.
5. At the 21 June Board meeting, the staff proposed that the Board should amend the definition of ‘coverage period’ for contracts that qualify for the VFA, to clarify this intended principle. In Appendix A to IFRS 17, a second paragraph would be added to the definition of ‘coverage period’ that would state: “For insurance contracts with direct participation features, the period during which the entity provides coverage for insured events or investment-related services. This period includes the coverage for insured events or investment-related services that relates to all premiums within the boundary of the insurance contract”.
6. Most Board members agreed that the change in the definition of the coverage period for contracts under the VFA would be a clarification of the fundamental principle rather than a change to the existing standard, and thus would meet the criteria of an annual improvement amendment. One member voiced concern about making the change without, at the same time, addressing concerns raised by TRG members at the 2 May meeting with regard to the coverage period for contracts following the general model that also include investment-related services, as further described below.
7. All Board members, except one, agreed that the proposed amendment to the definition of coverage period for contracts with direct participation features (VFA contracts) should be included in the next Annual Improvements to IFRS Standards Cycle.