By Susanne Pust Shah, Project Director, Financial Reporting Council.
Susanne, can you tell the Risk Insights audience a bit about yourself, your experience in the industry and what your current professional focus is?
I work for the UK Financial Reporting Council. One of the FRC’s roles is to influence IFRS. IFRS 17 was issued in May 2017 and is now subject to European endorsement. The FRC works closely with the European body EFRAG, who will advise on whether IFRS 17 should be endorsed for use in the EU or not. I am coordinating the FRC’s activities around IFRS 17 whilst the standard goes through endorsement.
You will be speaking at the forthcoming IFRS 17 on a panel discussion to discuss reviewing the latest developments, progress and unanswered questions of IFRS 17. What do you think will be the key talking points amongst panelists and why?
Insurers have just started to assess the impact of IFRS 17 on their future reporting. Some may have agreed to participate in the case studies EFRAG launched as part of the European endorsement process. First results of the case studies are expected by the end of summer, so the key talking points are developing. The IASB’s Transition Resource Group may provide clarity in areas where alternative interpretations have been identified by stakeholders. I expect cost of implementation, uncertainties about the impact of IFRS 17 on the back book and future business and timetable for implementation will be critical points for discussion.
Can you provide a brief overview of the standard and the regulatory expectations?
IFRS 17 is an accounting standard that applies to insurance contracts. It will replace IFRS 4 which was intended as a temporary standard. IFRS 4 did not set a consistent model for insurance contract accounting. This resulted in insurers from different countries applying different accounting practices, even if the insurance contacts were the same or similar. Insurers also did not have to align their accounting for insurance contracts in their group accounts. All that will change under IFRS 17. The accounting practices will be aligned, although, there will be flexibility under IFRS 17 to reflect own assumptions, different types of insurance products, asset and liability management practices. EFRAG will look at the costs and benefits of adopting IFRS 17 as part of the European endorsement process.
What are the latest developments and progress of IFRS 17?
After IFRS 17 was issued last year, EFRAG commenced its activities around European endorsement. EFRAG is expected to report to the European Commission and give its advice on endorsement of the standard by the end of 2018. EFRAG is seeking evidence from insurers and investors on the cost and benefits of IFRS 17 through case studies and questionnaires. EFRAG has also commissioned a report on the similarities and differences with Solvency II and an economic effects study. By the end of summer we should hear what the outcome is. EFRAG will publish the draft endorsement advice for comment at the beginning of September 2018.
In April 2018 the FRC will hold a panel discussion on the benefits and barriers to implementation of IFRS 17 to hear views from UK constituents.
The IASB has set up the IFRS Transition Resource Group. The Group will discuss topics where there is uncertainty about how IFRS 17 should be applied. The Group has met once in February and further meetings are planned for May, September and December this year.
What are you expecting to be the biggest challenges when moving on from IFRS 4 to IFRS 17?
Key challenges will depend on where an insurer starts from, eg what system capabilities they have, their current group accounting policies, what products they are selling etc.. I expect insurers will face challenges in systems development, staff training and communication with stakeholders.