Currently, ifrs 4 phase 2 allows the use of local reporting standards. Effective as of january 1, 2021, ifrs 17 insurance contracts replaces ifrs 4, the interim standard issued by the iasb in 2004. The ifrs guidebook solves this problem by condensing the key elements of ifrs into a single volume. 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. In chapter 2 the definition of an insurance contracts and the scope of the. Ifrs seminar series for regulators gdln 15 december 2010. General insurers should not ignore ifrs 4 phase ii october 2015. Ifrs 4 ifrs 4 insurance contracts is issued by the. Reinsurers may need to adjust their offerings to meet the needs of cedants. 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. Ifrs 4 phase ii latest developments the ifrs insurance contracts project is still in the pipeline after more than ten years work. It is important to understand what these proposals are and the implications on your. 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. I hope that kpmgs illustrative presentation and disclosures in the new report opening the black box.
Implementation of ifrs4 phase ii technical and practical. 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. Ifrs 4 phase ii for insurance contracts deloitte belgium. Risk adjustments for insurance contracts book may 2018 hong kong equivalent of ifrs.
The adoption of ifrs 4 means that companies will probably have to apply the. Iwgs proposals, which are developed through discussions among iwg members, have been reflected in iasbs tentative decisions. Ifrs 4 phase ii objective is to deliver the first comprehensive ifrs on accounting for insurance contracts. 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. 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 standard stipulates recognizing revenue when a performance obligation or service has been provided or transferred to the customer, which for insurance contracts. 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. We are close to a new ifrs insurance contracts accounting standard that will replace aasb 1023 and aasb 1038. 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. 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. Were disrupting the entire casual sex market place one bang at a time. Measurement model building block approach onerous contracts test 3.
Ifrs 17 introduces a fundamental change to existing insurance accounting practices for some companies. Pwc general insurers should not ignore ifrs 4 phase ii 3. Ifrs phase 2 insurance contracts solvency ii expired unexpired unincepted probability weighted average of future cash flows, discounted plus risk margin bba. 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. 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. Required to disclose equivalent confidence interval. A strict interpretation of the rules on contract boundaries would require a. 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. Probability weighted average of future cash flows, discounted and risk adjustment bba premium allocation csm approach onerous insurance contracts contracts insurance contracts ifrs 9. 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.
Under ifrs 17, the insurance contract will be recognised on 31 dec 2016, the premium due date, at the financial year end. 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. 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. Ifrs 4 phase ii ifrs 17 time to act roger simler, prashanth ariyam, naadira ebrahim deloitte glen daly hsbc 4 november 2016 agenda i. Value relevance of embedded value and ifrs 4 insurance contracts. 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. A contract is recognized at the beginning of the coverage period 6 if it complies with the ifrs 17 insurance contract definition. Iwgs proposals, which are developed through discussions among iwg members. 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. Ifrs 4 defines an insurance contract as a contract under which one party the. Ifrs 4 profit reporting for south african life insurance. Ifrs 4 phase 2 practical implications tamsin abbey, deloitte. This may affect contracts previously classified under ias 39 or ifrs 9.
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. In that case, any embedded derivative components and investment components are separated from the contract. Risk adjustment the methodology to determine the risk adjustment is not prescribed under ifrs 4 phase ii. The taxing issue of ifrs 4 phase ii financial services. The task is rendered more complex by the requirement for insurers to comply with new international financial reporting standards ifrs, known as ifrs 4 phase 2, which is based on a different concept for insurance contract boundaries that determine the cashflows that must be incorporated in technical provisions and discounting methods. 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. The original ifrs documents are lengthy and difficult to research. The discount rate is set to reflect the investment return. Product strategies under solvency ii and ifrs 4 phase ii. 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. Under ifrs 4 phase ii, the present value of future cash flows within the contract boundary plus the risk adjustment is. Text in gray boxes at the bottom of the slides contain updates from recent iasbfasb joint board meetings since the exposure draft.
Ifrs 17 replaces an interim standardifrs 4 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. Ifrs 4 is an international financial reporting standard ifrs issued by the international. Introduction to ifrs 4 phase ii four key concepts for nonlife insurers 2. There are three significant ways in which the two differ.
The text contains hundreds of practical examples that show. Taiwan insurers equity book value is much lower than that of eu insurers. 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. Demystifying ifrs 4 phase 2 will help you develop your understanding of the complexity and consequences of the forthcoming insurance contract standards. According to the current level of discussion, the publications of the final standard is expected for end2016.
Ifrs 4 phase 2 exposure draft 15 january 2014 background key areas of the proposal worked examples comparison with solvency ii questions. For contracts where the pricing of the premium does not include risks relating to future periods i. Challenges in implementing ifrs 4 phase ii zeb control. 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.
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. 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. 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. Ifrs 4 insurance contracts as revised in 2016 and marks the conclusion of the. 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. The ifrs exempts an insurer temporarily until completion of phase ii of the insurance project from some requirements of other ifrss. Applying ifrs 9 financial instruments with ifrs 4 insurance contracts amendments to. Change in book value of a group of contracts originated from. Potential impacts of ifrs 4 phase ii on nonlife insurance. The fair value of liabilities under ifrs 4 phase 2 has been disputed globally.
The deferral approach will enable the insurance industry to apply ifrs 9 at a later stage, i. The changes to measurement introduced by ifrs 4 phase 2 will almost inevitably lead to changes in performance measurement. 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. Society of actuaries in ireland ifrs 4 phase 2 exposure draft 2014. Potential impacts of ifrs 4 phase ii on nonlife insurance accounting by adrian ruegg in audit, financial services, 09. Kpmg ifrs 4 insurance contracts phase ii preparing for action nov 2015 milliman ifrs 17. A change of the composition of the book in terms of. One alternative is to provide 3 years between adoption of ifrs 9 and ifrs 4 phase ii. Efficient project management should build in phase ii awareness. Interest expense on the insurance contract liability will be equal and opposite to investment income on the. Iasb has decided to provide additional transition relief for ifrs 9 upon adoption of 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. Ifrs 4 insurance contracts phase ii revised ed interim aossg meeting 22 september 20, london agenda paper 6.
The replacement standard, ifrs 17 was issued in may 2017 and will become effective on january 1, 2022, supplanting ifrs 4 at that time. Whilst the implementation date for the new ifrs for insurance contracts is not. Publication of the ifrs 4 phase ii insurance contracts standard is expected in 2016. Implementation of ifrs4 phase ii technical and practical challenges richard olswang, prudential charles garnsworthy, pwc. The key valuation principles in the proposals for measuring liabilities for insurance contracts in ifrs 4 phase ii and solvency ii are the same. Like ifrs 4, ifrs 17 considers financial reporting at contract level. Background a new ifrs standard for insurance contract accounting ifrs 4 phase ii or phase ii. Phase 1completed in 2004 by issuing ifrs 4 insurance. 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.
For the insurance contract revenue, the epa applies the general principles of ifrs 15 revenue from contracts with customers. Insurance contract reporting under ifrs 17 zanders treasury. 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. Ifrs 4 phase ii fundamentally rearranges international accounting of insurance contracts. Under ifrs 4 phase ii, accounting policies will need to be standardized and insurers will need to ensure that the processes developed to comply with ifrs 4 phase ii, are auditable. The fair value of liabilities under ifrs 4 phase 2 has been disputed globally by. 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. 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. Practical considerations pricing optimisation ifrs acronyms ifrs international financial reporting standards iasb international accounting standards board. Ifrs 4 applies to virtually all insurance contracts including reinsurance contracts that an entity issues and to reinsurance contracts that it holds. Under ifrs 17 a reinsurance contract is defined as.
Accessibility certification knowledge base documentation sas books. However, a single contract, or even a single book of similar contracts, could. Stop swiping, and start banging the easy way today. Ifrs 4 phase 2 exposure draft 15 january 2014 background key areas of the proposal worked examples.
Book description international financial reporting standards ifrs are used as the basis for financial reporting. General insurers should not ignore ifrs 4 phase ii. Ifrs and solvency ii encourage comparability and transparency from a. Ifrs 4 phase ii comparison with solvency ii and mcev. 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. Ifrs 17 could probably qualify for an entry in a book of records. 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. 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 board sees phase i as a stepping stone to phase ii and is committed to. Appendix i solvency ii ifrs 4 phase ii comparison for contract liabilities. Ifrs 4 phase ii on general insurance reserving march 2015 iasb will decide at future meeting on effective date. Ifrs 4 permits an expanded presentation for insurance contracts acquired in a business combination or portfolio transfer. Ifrs 4 phase ii and solvency ii bridging the gap 1.
We also find that the value relevance of taiwan insurers equity book value. 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. In ifrs, the measurement of contracts will depend on classification as either insurance ifrs 4 or investment ias39 ifrs 9. Overview of solvency ii joint iaca, iaahs and pbss colloquium in hong kong. In 2010, the iasb released its first ifrs 17 back then referred to as ifrs 4 phase ii exposure draft. Ergebnisbericht des ausschusses enterprise risk management. Ifrs 17 introduces a fundamental change to existing. Insurers should consider how effective their existing reinsurance programme will be.
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