IASB Questions & Feedback Insurance IFRS Seminar December 1, 2016 Michael Lockerman Session 9

7 IASB Questions 194 Comment letters received

Overview of USER Responses Most agree need for change Lack of comparability between insurance and others Difficult to understand how an insurance makes money Need more updated assumptions in measurement Some believe that current accounting is good enough. Some not sure that proposals are improvement. - Users focused on one country, especially Australia and US Users who follow mainly non-life business

Current, market-consistent Most support the proposed model: Provides more timely information about risks Information more independent from management Widespread support for disclosures and separate information about investment and underwriting activity Some expressed concerns: Not faithfully represent long-term insurance business model Use of subjective estimates and assumptions Separate measurement from underlying assets could lead to accounting mismatches

IASB need resolve key concerns Complexity Extent of accounting mismatches Treatment of participating contracts COMPLEXITY bifurcating cash flows interaction between changes recognised as an offset to CSM, in P&L, or in OCI locked-in discount rates need for information that not currently used by management Accounting mismatches Most disagree with mandatory reporting of part of contract liability in OCI Many believed that participating contract proposals should also be extended to par contracts outside the narrow range Participating contracts not enough accounting mismatches would be eliminated to justify the complexity introduced into the model underlying diversity of views about what constitutes service from a contract

Question 1: Unlocking CSM Proposal: change in estimates related to future service cause change in future (not current) period profits liability = - CSM Thus: Total liability remains unchanged

Question 1: Unlock CSM Feedback IASB response General agreement with proposals for unlocking CSM from all types of constituents and jurisdictions. The IASB tentatively decided to confirm ED CSM should be unlocked for the changes in risk adjustment Agreed losses previously recognised in P&L loss should be reversed before the CSM is rebuilt

Question 2: Mirroring: Measure some contracts differently? Proposal: part of participating contracts would be measured (and presented) as related assets to avoid accounting mismatch where economic mismatch could not occur

Question 2: Mirroring Feedback IASB response unduly complex Will consider how to avoid bifurcation of cash flows Many constituents questioned whether the mirroring exception was worthwhile, given its narrow scope Want consistent treatment of embedded options and guarantees Will consider accounting for changes in fulfilment cash flows related to options and guarantees and related to changes in the estimates of return on investments

Question 3: Presentation Detailed views on presentation of revenue: Should it be similar for all insurance contracts? Proposal: revenue and expenses should be presented in a similar way for all insurance contracts. Revenue is recognised when service is provided and excludes deposits

Question 3: Presentation Feedback IASB response Some supported objective of consistent reporting for insurance compared non insurance confirm proposal in 2013 ED All users agreed that repayment of investment component should not be presented as part of revenue and claims Revenue should be recognised as earned and exclude investment components. strong disagreement from life insurance preparers on grounds of complexity

Question 4: OCI Detailed views on use of OCI: Should report part of investment activity separately? Proposal: presentation of cost type information in profit or loss, and the difference between cost and current value in other comprehensive income (OCI)

Question 4: OCI Feedback IASB response some preparers were concerned about the complexity and operational burden Entity should choose to present the effect of changes in discount rates in P&L or OCI as accounting policy Preparers and users concerned about possible accounting mismatches Par interest expense presented in P&L should be based on presentation of underlying assets disclose a disaggregation of the total interest expense into its components.

Question 5: Transition .Detailed views on transition: how to apply proposals for the first time? Proposal: apply new requirements as if they always applied. If it’s not reasonably possible, some simplifications are provided.

Question 5: Transition Feedback IASB response Widely supported will consider transition after completing deliberations on measurement and presentation proposals Concerns about operational complexity. Suggested further simplifications concerns about possibility that entities would not be able to apply proposals at same time as applying IFRS 9.

Question 7—Clarity of drafting Do you agree that the proposals are drafted clearly and reflect the decisions made by the IASB? If not, please describe any proposal that is not clear. How would you clarify it?

Thank You