IFRS: Insights and Activities | Wolters Kluwer
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  • IFRS: Insights and Activities

    by Jeroen Van Doorsselaere, VP Market Management Risk & Finance EMEA, Wolters Kluwer

    Published August 21, 2017

    Organizationally it has become clear that the different supranational standard setters are now aligning. Certainly with IFRS 9 and the new BCBS texts around credit risk management it is now evident that both The International Accounting Standards Board and the BCBS had comments on each other’s activities. Notably they have now signed a memorandum of understanding to work together in order to improve the experience within the Financial Sector in particular.

    Busting the Insurance Jargon

    In May 2017 The IASB issued IFRS 17 Insurance Contracts. The board says “this first truly international IFRS Standard for insurance contracts will help investors and others better understand insurers’ risk exposure, profitability and financial position.”

    IFRS 17 solves the comparison problems created by IFRS 4 by requiring all insurance contracts to be accounted for in a consistent manner “benefiting both investors and insurance companies.” Insurance obligations will be accounted for using current values – instead of historical cost.

    The road to 2021 (the effective date on which the insurance standard will need to be implemented) is set out within the standard. Effectively, The IASB felt the need to publish a common glossary to make sure the new requirements are clear for end users. Defining the major changes coupled to the major definitions of the elements of an Insurance contract.

    For example, earned premiums will no longer be called premiums but “insurance revenue” which will not be deducted by acquisition costs or ceded premiums. Premiums received will generally be similar to premiums due. Premiums received in the period will be disclosed in the notes as part of the roll forward of the insurance contract liability. Premiums written on the other hand has no equivalent in IFRS 17 but the present value of new business premiums will be part of the explanatory notes discussion.

    Income Statement

    As for the premiums on the income statement there have been some changes in subtotals and measurement base, depending on how this is structured in local GAAP.

    For example, an insurance service result subtotal will be required under IFRS 17 for all insurance contracts, and will exclude investment income and insurance finance expenses. The Contractual Service Margin (CSM) of new business determined under IFRS 17 represents the unearned profit on in-force business. The roll forward of the CSM will provide information about the amount of CSM added by new contracts written in the period. This will therefore give consistent information about the value added from new business and is likely to resemble the ‘new business profit’ measures commonly presented in non-GAAP reporting or embedded value information.

    Balance Sheet

    The biggest change has been saved for last. The UPR or Unearned provision reserves is now changed to a new measure which represents more than only UPR. The UPR will, as consequence, be part of the Liability for Remaining Coverage (LRC). Investors will be able to analyse the LRC by components, present value of cash flows, adjustment for risk and CSM. “Claim or loss reserves” will be included in the overall insurance contract liability on the balance sheet, and separately identified as ‘liability for incurred claims’ in the notes, with a detailed roll forward. The liability equals the probability-weighted expected cash outflows plus explicit adjustment for risk. Discounting will be applied if material.


    When IFRS 16 came into play, the consensus was that it would impact plenty of industries - although less so for the leasing companies. There would be still be a classification of an operational and a finance lease and the accounting would not change a great deal, except for the disclosure and presentation requirements.

    Having said that the Lessee accounting rules really did change. This included additional calculations, different recognition principles and the recognition of both assets and liabilities.

    There are also a couple of pitfalls left and this could influence leasing companies how to approach pricing decisions and risk management activities. The most pressing example is, of course, IFRS 9 as this will also be applicable on the leasing contracts on the balance sheet. This is often underestimated but requires the same logic and implementation effort as a bank with corporate lending.


    We live in an era defined by change, ever increasing regulations and disclosures, not to mention pressing economic conditions. Thanks to leasing and insurance standards, and IFRS 9, preparers have their hands full. The main question is now whether the joint memorandum of understanding between BCBS and IASB will lead to more standards or to a more standard way of approaches in both accounting and supervisory standards.

    For the moment preparers have no time to think and are hoping for consistency, ultimately occupied with SA-CRR, FRTB, IRRBB, IFRS 9, IFRS 16 and IFRS 17.

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