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IFRS 4 Insurance Contracts: Participating contracts and update on key issues.

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The International Accounting Standards Board (IASB) has substantially completed the development of the model for non-participating contracts under IFRS 4. However, issues relating to its model for insurance contracts with participating features have yet to be resolved.
The coming months will be key to resolving the remaining issues in order for a standard to be issued. This webcast provides an update on progress and a discussion about the key outstanding questions.
This webcast discussed:
• Timelines for completion and interaction with IFRS 9
• IASB model – main tentative decisions to date and key issues for remaining re-deliberations,
• Participating contracts – what is the issue, what proposals are being considered, and how will questions be resolved?
• The road ahead

Link for access the webcast replay: http://www.ey.com/GL/en/Issues/webcast_2015-06-18-1400_ifrs-4-insurance-contracts

Published in: Business
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IFRS 4 Insurance Contracts: Participating contracts and update on key issues.

  1. 1. IFRS 4 Insurance Contracts: Participating contracts and update on key issues. Hosted by the EY Global Insurance Center 18 June 2015
  2. 2. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 2 18 June 2015 Today’s moderator Kevin Griffith Ernst & Young LLP (UK) Partner
  3. 3. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 3 18 June 2015 Today’s agenda ► Timelines ► General model ► Participating contracts ► The road ahead Join today’s Twitter discussion: #EY_Insurance
  4. 4. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 4 18 June 2015 Today’s presenters Darrel Scott IASB member Hans van der Veen Ernst & Young Accountants LLP (NL) Senior Manager Richard Olswang Prudential plc Global Actuarial Lead for IFRS 4 Phase II Member of EFRAG’s Insurance Accounting Working Group
  5. 5. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 5 18 June 2015 Today’s agenda ► Timelines ► General model ► Participating contracts ► The road ahead Join today’s Twitter discussion: #EY_Insurance
  6. 6. Page 6 IFRS 4 Insurance Contracts: Participating contracts and update on key issues18 June 2015 Timelines - New IFRS for insurance contracts Ongoing IASB deliberations Implementation period Reporting IFRS4PhaseIIIFRS9 Potential IFRS 4 Phase II Final standard Potential IFRS 4 Phase II effective date 1 Jan 2020 Potential IFRS 4 Phase II first annual financial statements IFRS 4 Phase II Re-exposure Draft Potential IFRS 4 Phase II start of comparative period Start of IFRS 9 comparative period IFRS 9 Final Standard 2013 IFRS 9 Effective date 1 Jan 2018 Possible revised IFRS 9 classification from IFRS 4 Phase II transition First IFRS 9 annual financial statements 2014 2015 2016 2017 2018 2019 2020
  7. 7. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 7 18 June 2015 Today’s agenda ► Timelines ► General model ► Participating contracts ► The road ahead Join today’s Twitter discussion: #EY_Insurance
  8. 8. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 8 18 June 2015 IASB proposal General model Expected value of future cash flows Discount rate Risk adjustment Contractual service margin Reinsurance Disaggregation PresentationSeparation Definition and scope Disclosure Regulatory Frameworks Financial Instruments and other accounting changes Transition Simplified approach BuildingBlockApproach
  9. 9. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 9 18 June 2015 IASB proposal Key issues for remaining re-deliberations ► Non-participating contracts: ► Reconciliation with the model for participating contracts ► Scope ► Sweep issues ► Participating contracts ► Transition: application issues raised ► Effective date: timing of the final standard and link with IFRS 9
  10. 10. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 10 18 June 2015 Today’s agenda ► Timelines ► General model ► Participating contracts ► The road ahead Join today’s Twitter discussion: #EY_Insurance
  11. 11. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 11 18 June 2015 Participating contracts Background from the ED Performance reporting Options & Guarantees Shareholder’s share in underlying items Scope Interest expense in PL Level of aggregation
  12. 12. IFRS 4 Insurance Contracts: Participating contracts and update on key issues18 June 2015 Adaptations for Participating contracts IASB direction Page 12 How to view the insurer’s economic interest in underlying items (shareholder’s share): ► View 1: Share in the economic return in underlying items ► Accounted for under applicable standards (e.g., IFRS 9) ► View 2: Variable fee ► Obligation under the contract to pay the policyholder an amount equal to the value of underlying items less a variable fee ► Variable fee = shareholder’s share less cost of guarantees, accounted for through the CSM Scope of variable fee approach: ► 3 criteria to be met, no reassessment after inception
  13. 13. IFRS 4 Insurance Contracts: Participating contracts and update on key issues18 June 2015 Adaptations for Participating contracts IASB direction (continued) Page 13 Interest expense in profit or loss ► Current period book yield approach: ► Interest expense on the insurance contract liability will be equal and opposite to investment income on the underlying items ► Difference with the interest expense determined based on current rates would be reported in OCI ► Scope of current period book yield approach: ► Criteria for variable fee approach, and ► Underlying items are held (to be reassessed after inception) ► Effective yield approach: ► For participating contracts not in scope of the book yield approach ► Several variations discussed by Board in educational sessions
  14. 14. IFRS 4 Insurance Contracts: Participating contracts and update on key issues18 June 2015 Participating contracts Scope Page 14 ► Where will the lines between each of the areas be? ► How many models/variations will there be? current period book yield Non participating Direct participating Indirect participating General model Variable fee model Continuum of insurance contracts Measurement General model – interest expense (OCI/PL) Current period book yield Interest expense Type of contract
  15. 15. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 15 18 June 2015 Participating contracts Resolving the model Critical issues ► Scope ► ‘Cliff effect’ between the accounting for indirect and direct participating contracts ► Level of aggregation ► Application to participating contracts, including mutualisation ► Hedging ► Preventing accounting mismatch
  16. 16. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 16 18 June 2015 Today’s agenda ► Timelines ► IASB proposal ► Model for participating contracts ► The road ahead Join today’s Twitter discussion: #EY_Insurance
  17. 17. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 17 18 June 2015 The road ahead ► The IASB is committed to finalise the project, but uncertainties around next steps and timing remain ► Resolving the issues of participating contracts and level of aggregation will be key ► It is likely middle ground needs to be found for some key areas  Effective date of the final standard will not be 2018  How much later then 2018?  Alignment with IFRS 9 is an important issue for insurers  Phase II will have a huge impact on insurers, not only for financial reporting but also for operations  Preparation should pick up momentum, whilst remaining flexible
  18. 18. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 18 18 June 2015 Contact us Follow us on Twitter: @EY_Webcasts Kevin Griffith Ernst & Young LLP (UK) Evan Bogardus Ernst & Young LLP (US) Dana D’Amelio Ernst & Young LLP (US) + 44 (0)20 7951 0905 kgriffith@uk.ey.com + 1 (212) 773 1428 evan.bogardus@ey.com + 1 (212) 773 6845 Dana.DAmelio@ey.com
  19. 19. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 19 18 June 2015 Resources ► Global Insurance website www.ey.com/insurance ► IFRS Insurance Insights www.ey.com/insuranceifrs ► Solvency II www.ey.com/solvencyii

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