On 6 March Insurance Europe and the CFO Forum wrote a joint letter to the European Financial Reporting Advisory Group (EFRAG) to express concerns over the potentially staggered implementation of the International Financial Reporting Standards (IFRS) 9 for financial instruments and IFRS 4 Phase II for insurance contracts.
The letter noted that, due to insurers’ business model, it is important that accounting requirements for financial instruments and insurance liabilities are considered together as a package.
IFRS 4 Phase II will not, however, be ready by the implementation date for IFRS 9 in 2018. Consequently, insurers are concerned that they will have to implement IFRS 9 on a temporary basis and then alter it again, at considerable cost, when IFRS 4 Phase II is implemented later. The letter also pointed out that if IFRS 9 and IFRS 4 Phase II need to be implemented separately it will cause significant confusion, both for users and investors.
While a potential European solution has been put forward to allow insurers to implement the two standards together, the letter points out that a global solution is needed, so asks EFRAG to push the International Accounting Standards Board (IASB) to develop such a solution.