Insurance Europe and the CFO Forum have written to the European Financial Reporting Advisory Group (EFRAG) to express their views on the EFRAG's draft endorsement advice of the International Financial Reporting Standard (IFRS) 9 on financial instruments in the EU. The EFRAG provides technical support to the European Commission on financial reporting issues.
The letter said that it is important that the accounting requirements for financial instruments and insurance contracts (IFRS 4 Phase II) are considered and applied simultaneously. It is also crucial that there is a global solution to align the effective dates for IFRS 4 Phase II and IFRS 9 for insurers, reflecting how insurers' financial assets and insurance liabilities are managed together.
The letter also indicated that whilst the full impact of IFRS 9 on the insurance industry is yet to be determined, an initial review of the balance sheets of some of the largest and most affected continental European insurers suggests that between 8% and 20% of the assets currently accounted for at amortised cost or on an available-for-sale basis, with a value of more than €250bn, will be required to be accounted for at fair value through profit and loss. Fair value movements on these assets would be recognised in the income statement.