In its May meeting, the EFRAG TEG members continued deliberation on the content to be included in its draft endorsement advice for IFRS 17.
The May meeting focused on papers that were supposed to be discussed on previous meetings: IFRS 17 and mutual entities, contracts that change their nature over time and IFRS 17 Economic study.
- Mutual entities in the IFRS 17 Draft Endorsement Advice (Link to Agenda paper 06-02)
The EFRAG TEG members discussed on the wording to be included in the draft endorsement advice on mutual entities as part of the Appendix 2. The analysis of the interaction between IFRS 17 and mutual entities was performed in terms of relevance, reliability, understandability and prudence.
The EFRAG TEG continued previous discussions on this topic and, in this round, also discussed feedback received from EFRAG IAWG. Part of the comments received from EFRAG IAWG have been incorporated into the text. Final text will be updated in accordance with EFRAG TEG members‘ comments.
- Contracts that change their nature over time (Link to Agenda paper 06-03)
The impact of contracts that change their nature over time under IFRS 17, such as contracts that may switch from contracts without direct participation features to contracts with direct participation features and vise verse, was considered for possible inclusion in the draft endorsement advice. The overall concern is that volatility would arise from continued measurement under VFA of contract that have no underlying items. Also, there is a transition issue described in the paper.
The EFRAG Secretariat has proposed the section in Appendix 2 on impact of contracts that change their nature over time on technical criteria – relevance. Impact on the other technical criteria is to be completed.
Further, the EFRAG TEG members asked for additional clarification of the fact pattern in the agenda paper.
The Economic study was first drafted in 2018 by the consulting companies LE Europe and VVA Consulting to assist in the endorsement process to IFRS 17. Updated version considers Amendments on IFRS 17 and includes more actual data up to March 2020.
The purpose of the document is to provide inputs to EFRAG‘ s impact assessment in the following areas:
- The competitiveness landscape in which European insurers operate and the potential impact of a change in financial reporting on competitiveness;
- Observable trends in the business models of European insurers, their causes and the potential impact of a change in financial reporting and
- Investor perception of the insurance sector.
EFRAG TEG members commented on the Economic study and suggested few changes. One member noted that the quoting of different interviewees should be done more carefully, e.g. how negatively some believe IFRS 17 will impact the life insurance industry.
Paper will be updated in line with EFRAG TEG members‘ comments.
As a result of this meeting, the section on IFRS 17 and mutual insurance entities will be included in the draft endorsement advice. Text to be included in the draft endorsement advice on the contracts that change their nature over time will be further discussed on the next meeting.
EFRAG TEG will continue to discuss on the content to be included in the draft endorsement advice for IFRS 17 during the next meetings. Next meeting is planned for the 3rd of June.
For an overview of topics already included in the draft endorsement advice, please refer to Link.