EFRAG TEG contributing to the preparation of the draft endorsement advice for IFRS 17

In its January meeting, the EFRAG TEG members continued deliberation on the content to be included in its draft endorsement advice for IFRS 17. While the EFRAG has not published a timeline on when it expects to issue the draft endorsement advice, it is following a workplan to identify all the topics to be included in the DEA that is spread over several months.

The January meeting focused on the proposal of the text that will be included in the draft endorsement advice on three overarching topics: the relation between IFRS 17 and Solvency II; relevance and reliability issues; and content of the Appendix 3.1. Issues paper. The members also discussed the amendments to IFRS 17 that are included in January IASB Staff papers.

  • Relation between IFRS 17 and Solvency II (Link to Agenda paper 11-02A)

The European Commission and the European Parliament had asked EFRAG to assess the potential ability for the companies to benefit from the work undertaken in reporting under the Solvency II regime and to understand the size of the differences between IFRS 17 and Solvency II, especially in relation to the cost of implementing IFRS 17.

The EFRAG TEG has proposed a (revised) answer to this question in this agenda paper and has  drafted the proposed text which EFRAG intends to include in the EFRAG’s draft endorsement advice as Appendix 3.

The agenda paper has been revised since the last EFRAG TEG Meeting, where it was agreed that the focus of the paper should be interaction between IFRS 17 and Solvency II rather than focusing on the costs/differences.

EFRAG Secretariat noted that it should be looked into differences to see the extent of the synergies. There are synergies but they are limited, and the number and extent of synergies depend on how deeply the transformation into Solvency II was done.

EFRAG TEG members approved updated version.

  • Relevance and Reliability Issues paper (Link to Agenda paper 10-03)

The EFRAG TEG agenda paper proposes the text on its assessment of the IFRS 17 requirements for their relevance and reliability which the EFRAG TEG plans to include as Appendix 2 into the EFRAG’s draft endorsement advice.

In providing its assessment on whether IFRS 17 results in relevant and reliable information, EFRAG has considered all the requirements of IFRS 17 including the December 2019 IASB tentative decisions relating to the amendments to IFRS 17. Definition of the information being relevant and reliable is explained in the paper. EFRAG has assessed IFRS 17 requirements such as measurement of insurance contracts, different insurance accounting models, reinsurance contracts held, treatment of investment component and other relevant topics against technical criteria.

It was noted that the paper does not cover annual cohorts nor topics that the IASB will re-deliberate in its future meetings. These topics will be discussed once the IASB tentative decisions on these are known.

EFRAG TEG members were asked if they have any comments on the analysis performed or if they would include any additional topics in the analysis. Members had editorial comments. An analysis and overall assessment will be finalized once the IASB tentative decisions on these topics are known.

  • Appendix 3.1. Issues paper (Link to Agenda paper 10-04)

The objective of this paper is to provide a draft text proposal to be included as Appendix 3.1 into EFRAG´s draft endorsement advice.

Topics that are analyzed and discussed as part of this paper are:

  • who is affected by the new standard and how, is IFRS 17 an improvement compared to IFRS 4,
  • how IFRS 17 responds to the problems identified in IFRS 4,
  • what are the economic, social and environmental impacts,
  • what are the implications for the EU of not endorsing IFRS 17 and
  • other analysis of the IFRS 17 impact.

EFRAG Secretariat emphasized that the assessment came from an economic study. The economic study was done by interviewing industry groups before the amendments were discussed and it is expected that, with all the amendments done, the Standard will have higher level of acceptability from the industry.

Members had editorial comments and suggested some changes in the text. In addition, part of the analysis will be updated as the IASB finalizes of the amendments.

  • Amendments to IFRS 17: Monitoring IASB tentative decisions (Link to Agenda paper 10-05)

The objective of this session was to update EFRAG TEG about the January IASB staff papers from the IASB session later that day. For the blog on IASB meetings, please see the Link.

IASB Staff recommendations for: scope exclusion from IFRS 17 for some credit card contracts and interim financial statements are aligned with EFRAG Comment letter.

Recommendation on Transition – the prohibition from applying the risk mitigation option is not aligned with EFRAG Comment letter.  EFRAG proposed retrospective application.

Recommendations on business combinations and asset for insurance acquisition cash flows – transition and business combinations are not included in EFRAG Comment letter. 

 

Next steps:

EFRAG TEG will continue to discuss on the content to be included in the draft endorsement advice for IFRS 17 during the next meetings.

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