History of IFRS for Insurers Insurance IFRS Seminar December 1, 2016 Michael Lockerman Session 4

Who are the players and key stakeholders? FASB IAIS GNAIE OSFI EIOPA G20 ACLI IASB NAIC SEC CFO Forum FSA CRO Forum

Players and Key Stakeholders IFRS—International Financial Reporting Standards Standard setter—International Accounting Standards Board (IASB) founded in 2001 and based in London International Accounting Standards Committee (IASC) Foundation Appoint IASB members Exercise oversight Raise funds Similar to Financial Accounting Foundation (FAF) Predecessor organization was International Accounting Standards Committee (IASC) founded in 1973

IASB Structure

Who are the parties in the standard-setting process? Date Who are the parties in the standard-setting process? United States (US GAAP) SEC Global IOSCO European CEIOPS/ EIOPA FASB IASB

History of Project - IASB International Accounting Standards Board London-based, 14 members from 9 countries Dedicated staff Insurance Working Group (IWG) Worked with FASB (U.S. Financial Accounting Standards Board) until 2011, then decided that “convergence” couldn’t be achieved. As a result, FASB issued its own exposure draft. Pronouncements: IAS (International Accounting Standards) by the IASC (predecessor of the IASB) IFRS (International Financial Reporting Standards) by the IASB These are identical – IAS was published before IFRS

History of Project - Influencers Those providing significant input: CFO Forum (European insurers) GNAIE (Group of North American Insurance Enterprises) Insurers from Japan IAA (International Actuarial Association) IAIS (International Association of Insurance Supervisors) European Union (EU) – they mandate the IASB make the standards, but each country must adopt

History of Project - Objectives To provide information to users of financial statements that is relevant for economic decision-making To eliminate inconsistencies and weaknesses in existing practices To provide comparability across entities, jurisdictions and capital markets

History of Project – Phase 1 Phase 1 started in 1997 2001 Draft Statement of Principles 2004 Phase 1 ended with IFRS4 Intended as a temporary standard to buy time to agree an appropriate accounting model Defined insurance contracts Revised IAS 39, guidance for investment products Insurers to use existing accounting policies (local GAAP), but subject to a liability adequacy test Substantial additional disclosures required. Still allowed diverse practices Applies to insurance contracts and investment contract with discretionary participating features, not insurance companies

History of Project – Phase 2 Phase 2 started mid-2004 IASB, IASB staff and IWG worked on a discussion paper called “Preliminary Views” or “Discussion Paper,” released in May 2007 Main text – 150 pages; Appendices – 80 pages Over 160 Comments letters Had something appealing and something offensive to everybody

2010 Exposure Draft Board worked on for 2 years Issued ED (Exposure Draft) July 2010 ED - 87 pages Basis for Conclusions - 95 pages Plus appendices with numerical examples

2010 Exposure Draft Approximately 250 comment letters Themes in issues by regions Asia Pac Discount rates, presentation, and transition Europe – Those and… Residual margins, DFPs, unbundling North America – Those and… Risk adjustment, short duration contracts General agreement with disclosures

Since the 2010 Exposure Draft Goal had been to publish a standard by June 2011. Goal wasn’t met, several board members, including the chair, retired. Momentum was lost. New board was slow in re-starting Solicited analysts and other stakeholder comments Result has been to move away from “ivory tower” principles to some more pragmatic solutions “Irreconcilable differences” with FASB emerged No longer seeking convergence

2013 Exposure Draft IASB a revised ED in June 2013 ED - 79 pages Basis for Conclusions - 158 pages Numerical examples – 30 pages ED proposes changes and seeks input only on what the IASB considers the five most material changes from the 2010 ED. Simultaneously FASB issued its ED. FASB ED sought comments on the entire document.

2013 Exposure Draft (con’t) FASB abandoned project in April of 2014 in favor of “targeted improvements” to existing US GAAP. Reaction from US GAAP reporters was overwhelmingly negative IASB is currently re-deliberating. All decisions are expected to be made by year end and a final standard is expect in mid-2015. Effective for 2018 or 2019 financial reporting.

Thank You