Following specific concerns raised by the CFO Forum and EFRAG amongst others, nine industry bodies representing insurers in major markets around the world wrote to the IASB setting out a case for a two-year delay in the effective date of 1 January 2021.
In contrast, last week the European Supervisory Authorities, comprising the European Banking Authority, the European Securities & Markets Authority and the European Insurance and Occupational Pensions Authority wrote to EFRAG to warn strongly against any slippage in the endorsement process in the EU, and consequently the likely effective date, citing in particular the interaction with the effective date of IFRS 9 Financial Instruments.
Any changes are likely to be narrowly-focused
In its October meeting, the IASB discussed the process for evaluating any potential changes to the standard, including the effective date, and agreed on the criteria by which they would assess the merits of any such amendments. In addition to maintaining the usefulness of information to investors, any changes should minimise disruption in existing implementation processes or risk undue delays in the effective date.
From feedback received from stakeholders, the IASB staff had identified 25 areas of concern. While the Board expressed a willingness to consider these matters, there was a clear sense that any changes would be narrow in scope (the term “surgical strikes” was used by one Board member) and that, in general, there was a strong reluctance to re-open the published standard unless significant new information had come to light since issuing the standard. A number of Board members spoke of the need not to compromise the core principles underpinning the standard and IFRSs more generally.
The Board will now consider individual points in the November or December meetings.
“Clearly with the need to abide by the IASB’s due process requirements, including public consultation, potential revisions to the standard, if any, are unlikely to be confirmed in the near future, causing insurers added uncertainty as they progress with their implementation programmes,” said Roger Gascoigne, Senior Director at Willis Towers Watson. “Having spent 20 years preparing the standard, as ultimately issued, there is evidently no appetite for knee-jerk reactions. The Board is clearly alert to the consequential impacts, particularly on insurers who have already invested significant amounts on implementation.”
The Board debated some possible solutions to the question of a delay beyond 2021, including removing the requirement for comparatives and differentiating between listed and unlisted companies, but these options are not without significant disadvantages.
How should insurers react?
Insurers are, therefore, facing difficult questions about how much to invest in IFRS 17 implementation projects and whether to accelerate or delay their timetables.
“Given the current status, insurers should definitely keep going with projects under the assumption that effective date of 2021 remains,” said Kamran Foroughi, Senior Director at Willis Towers Watson. “One practical short term step may be to revisit the project plans, considering what key aspects would change if the effective date were to be delayed by a year or two. In our experience, this would reduce project risks, enable more contingency time and enable more testing of processes and systems including the ability to perform and implement improvements resulting from dry runs.
“Any delay in the timetable would allow preparers to adopt a value-add approach instead of struggling to achieve minimum compliance. Insurers would also have some capacity to consider business implications earlier and in a more measured way.”
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