The ED contains amendments to the IFRS 17 Standard, published in May 2017 following a lengthy consultation process with the insurance industry, and represents those items which the IASB considers most significant to the reporting under IFRS 17, while maintaining the proposed new effective date of January 2022.
Serhat Guven, Managing Director and Global IFRS Lead at Willis Towers Watson, commented, “We commend the IASB for reopening and updating the Standard to address key concerns brought forward by those impacted by the Standard.”
Willis Towers Watson has analysed the proposed amendments, testing its conclusions with clients, and has this week submitted a response to the IASB. Willis Towers Watson’s submission, which includes additional suggestions for improvement will, according to the consultancy, serve to further harmonise the reporting of insurance results.
The most significant areas for further improvement in the proposed amendments, based on an in-depth review by Willis Towers Watson, include:
• The proposed amendments provide relief from an accounting mismatch between onerous contracts and associated reinsurance where the reinsurance is on a proportionate basis. We believe that the definition of reinsurance contracts that provide proportionate coverage is too narrow and would exclude a number of commonly-used types of reinsurance that in our view should be considered proportionate.
• The proposed amendments provide additional relief in certain circumstances when reinsurance is used to mitigate financial risk. Our view is that this option should be extended to permit assets held to also be included, in addition to derivatives and reinsurance contracts.
• The permitted modifications to the Full Retrospective Approach (FRA) to implement the Modified Retrospective Approach (MRA) are, in our opinion, too narrow and restrictive. We believe this will result in a significant amount of business being restated on the Fair Value Approach (FVA) at transition. We do not believe the FVA is equivalent to the FRA or the MRA, and we have proposed additional modifications and flexibility so that there will be a broader adoption of the MRA, including making these requirements more principles-based.
“We continue to work with clients globally in help with the implementation of IFRS 17,” said Serhat Guven. “The amendments proposed by the IASB will cause additional work to implement, given that insurers have already spent considerable time and effort based on the May 2017 IFRS 17. However, we believe the proposed amendments, with some additional enhancements, will result in a better IFRS 17 Standard in general that more closely reflects how companies underwrite and manage insurance risk.”
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