IFRS IC Agenda Decision on the IFRS 17 multi-currency groups of insurance contracts

In October 2022, the IASB approved the decision taken in September by the IFRS IC (see addendum to the September IFRIC Update, available here) deciding that there is no requirement for a group of multi-currency insurance contracts to be broken down into subgroups to account for currency exchange rate risk, and on the interaction between IFRS 17 and IAS 21 for these contracts.

Keywords: Mazars, Thailand, IFRS, IFRS 17, IASB, Multi-currency groups

22 December 2022

Paragraph 14 of IFRS 17 requires sub-groups of contracts with similar risks that are managed together to be distinguished within a portfolio. The IFRS IC has decided that while foreign exchange risk is indeed one of the many risks to be considered, ‘similar risks’ does not mean ‘identical risks’. In other words, a portfolio could include contracts subject to different currency exchange rate risks, and the analysis of the nature and extent of the risks is a matter of judgment.

For the measurement of multi-currency contracts, the IFRS IC accepts that one or several currencies may be used. In the latter case, the IFRS IC observed that (i) paragraph 30 of IFRS 17 requires a group of contracts, including the contractual service margin, to be treated as a ‘monetary item’ for the purposes of IAS 21, and that (ii) the contractual service margin is a single contract margin: there are not several depending on the currency of the underlying flows. Consequently, the entity shall translate the cash flows and contractual service margin of a group of multi-currency contracts in accordance with IAS 21, considering the contractual service margin as a single amount.

The draft decision was widely supported by stakeholders and the application of this decision should therefore not be a problem.