Insurance Europe and the CFO Forum have today published a joint response to a consultation conducted by the European Financial Reporting Advisory Group (EFRAG) on its draft endorsement advice on International Financial Reporting Standard (IFRS) 17 – insurance contracts.
IFRS 17 has been developed by the International Accounting Standards Board (IASB) and needs to be endorsed by European legislators in order to come into effect in the EU. EFRAG’s advice to the legislators on endorsement will play an important role in that process.
Europe’s insurers support high quality reporting standards and have put significant effort into ensuring that IFRS 17 adequately captures the key elements of the insurance business model that allow insurers to provide protection and investment products that benefit both customers and wider society.
While Europe’s insurers welcome the improvements made by the IASB in the final version of IFRS 17, the standard still contains a number of unresolved issues. However, apart from an issue regarding annual cohorts, the industry agrees that these issues should not block the endorsement of IFRS 17 in the EU and can instead be addressed later as part of a post implementation review.
The issue of annual cohorts remains a fundamental concern for insurers because the current requirements will not adequately reflect the true economic nature of insurance products which are cashflow matched or involve risk sharing between customers and over time. Failure to address this issue will risk undermining such products, reduce the usefulness of the reporting information and increase costs.
European insurers therefore support endorsement of IFRS 17 if an appropriate solution is incorporated in Europe for annual cohorts. This solution can and must be designed to avoid any change to the 1 January 2023 effective date and allow those who want to apply the full IFRS to do so.