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

2. 7 IASB Questions
194 Comment letters received

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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)

13. 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.

14. 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.

15. 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.

16. 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?

17. Thank You