Key points of the ED on amendments to IFRS 17

The IASB published an exposure draft (ED/2019/4 Amendments to IFRS 17) on 26 June 2019, proposing amendments to the insurance contracts standard.

Keywords: Mazars, Thailand, IFRS, IFRS 17, IASB, CSM, VFA, FRA, MRA, FVA

31 October 2019

We present a concise tabular summary of the key points of this exposure draft. In the table below, the following acronyms are used, defined as follows:

  • CSM (contractual service margin): a component of the book value of the asset or liability for a group of insurance contracts, representing the unearned profit the entity will recognise as it provides the services specified in these insurance contracts.
  • VFA (variable fee approach): a specific recognition approach (as a modification to the general model) under IFRS 17 that is used only for insurance contracts with direct participation features.
  • FRA (full retrospective approach): a transition approach to IFRS 17 which, except where an exemption is specifically permitted, requires fully retrospective application for insurance contracts at the date of transition to IFRS 17 (i.e. pre-existing contracts shall generally be recognised as if IFRS 17 had been applied since inception).
  • MRA (modified retrospective approach): another transition approach (a more flexible variant of the FRA) that permits a limited number of specified exemptions to fully retrospective application for pre-existing contracts. It may only be used in situations where the FRA is not practicable.
  • FVA (fair value approach): a third transition approach, which is significantly different from both the FRA and the MRA, in that the CSM is determined almost exclusively based on information and estimates available at the transition date. It may only be used in situations where the FRA is not practicable.

The key points of the exposure draft published in June are presented below:



Concerns about the current requirements
 of the standard

IASB response and proposed amendments

ED reference


Scope of

Loans and other forms of credit that transfer significant insurance risk

Some stakeholders (particularly banks) have raised concerns about loan contracts and other forms of credit that must be accounted for under IFRS 17 because they transfer significant insurance risk, but that actually have a relatively small insurance component.

Some groups that do not issue insurance contracts in the strict sense have had to apply IFRS 17 just for these contracts.

The IASB has decided to amend IFRS 17 to exclude certain contracts from its scope, if their main objective is the granting of loans or other forms of credit, and to permit entities to elect to apply IFRS 9 instead of IFRS 17 for other types of contract:

-        loans with an insurance component: entities may elect to apply IFRS 9 instead of IFRS 17

-        credit card contracts that provide insurance coverage where the price of the contract does not reflect the individual insurance risk of each customer: excluded from the scope of IFRS 17 and must be accounted for under IFRS 9 instead.

Paras. 7(h), 8A, Appendix D and BC9–BC30


Insurance acquisition cash flows relating to contracts with an automatic renewal clause
(where future renewals do not fall within the contract boundary)

In some cases, an entity may pay non-refundable acquisition costs at an amount that takes account of expected future contract renewals, which do not fall within the boundary of the original contract. These cash flows may even exceed the amount of the premium.

Allocating the entirety of these cash flows to the original contract, rather than allocating part to the expected renewals, may require entities to treat the original contract as onerous and to recognise a loss on initial recognition.

The IASB has decided to amend the standard to permit entities to allocate a portion of the acquisition costs to future renewals. This portion would continue to be recognised as an asset until recognition of the renewals, and would be subject to a recoverability assessment at each year-end.

In addition, specific disclosures would be required in the notes on insurance acquisition cash flows recognised as assets:

-        a reconciliation from the opening to the closing balance (separately identifying any impairment losses or reversals of impairment losses);

-        when the entity expects to derecognise these assets, in appropriate time bands.

28A–28D, 105A–105C, B35A–B35C and BC31–BC49


CSM – coverage units for insurance contracts that include investment services

The standard does not faithfully reflect the fact that some contracts include both insurance coverage and investment services.

The current version of the standard requires entities to recognise the investment services portion of the product only during the insurance coverage period; it may not be recognised during periods when insurance coverage is not provided. However, in practice, it is possible that investment services and insurance coverage are provided over different periods.

The IASB has decided to amend the standard to require entities to:

-       recognise expected profit in line with the provision of both insurance coverage and investment services. It should however be noted that slightly different terms are used for the VFA and the general model (investment-related service/investment-return service). Where the general model is applied, some contracts may not be able to recognise the investment services component in line with amortisation of the CSM, due to limitations on the definition of an investment-return service;

-       disclose in the notes:

  • quantitative information on when they expect to recognise the CSM in profit or loss, in appropriate time bands; and
  • the approach used to determine the relative weighting of each type of service.

44–45, 109 and 117(c)(v), Appendix A, B119–B119B and BC50–BC66



Reinsurance contracts held –

limited scope of risk mitigation option under the VFA

Stakeholders feel that the scope of the risk mitigation option is very limited.

More specifically, they believe that reinsurance contracts held are also, from an economic point of view, risk mitigation instruments.

The IASB has decided to amend the standard to permit entities to apply the risk mitigation option when they use reinsurance contracts held to mitigate financial risks associated with contracts with direct participation features.

B116 and BC101–BC109


 Reinsurance contracts held –

initial recognition when underlying contracts are onerous

Where onerous contracts issued are covered by reinsurance contracts, the positive impact of the reinsurance is not recognised at an amount equal to the loss on the underlying contracts at initial recognition.

The exposure draft proposes amendments to the standard where reinsurance contracts provide “proportionate” coverage (with a new definition of contracts that provide “proportionate” coverage that could limit applicability).

Insurers will henceforth be required to immediately recognise income from reinsurance contracts held when they recognise losses on onerous underlying insurance contracts issued (including on initial recognition of the underlying contracts).

62, 66A–66B, B119C–B119F and BC67–BC90


Presentation in the statement of financial position

Separate presentation of groups of insurance contracts that are assets and those that are liabilities

IFRS 17 does not permit groups of insurance contracts that are assets to be offset against those that are liabilities.

Some stakeholders believe that the prohibition against offsetting assets and liabilities will exacerbate the operational challenges involved in developing new information systems.

The IASB is proposing to amend the standard by requiring entities to present IFRS 17 assets and liabilities in the statement of financial position by portfolio of contracts, rather than by group of contracts (i.e. a less fine division).

78–79, 99, 132 and BC91–BC100


Effective date of IFRS 17 and temporary exemption from IFRS 9

Implementation of IFRS 17 requires a lot of complex work within a very short time-frame, with the standard currently due to come into effect for annual reporting periods commencing on or after 1 January 2021.

Insurance companies that meet the criteria set out in IFRS 4 can defer application of IFRS 9 – Financial Instruments (which will also have a significant impact on insurers) to the same date.

The IASB has decided to defer the effective date of IFRS 17 to annual reporting periods commencing on or after 1 January 2022. Insurance companies would also be permitted to defer application of IFRS 9 to the same date.

C1, proposed amdmt. to IFRS 4 and BC110–BC118


Transition requirements

If application of the full retrospective approach (FRA) is impracticable, an entity may use the modified retrospective approach (MRA) or the fair value approach (FVA) as alternative methods of determining the CSM for groups of insurance contracts at the date of transition to IFRS 17. For the MRA, IFRS 17 defines a limited set of permitted modifications that entities can make to the FRA. Some stakeholders believe that the MRA does not permit sufficient modifications to be applicable in practice, and that a more principles-based approach would be better, or that additional modifications could be permitted.

The IASB has not taken this approach (i.e. the MRA remains broadly unchanged and the permitted modifications are still limited to those explicitly set out in the standard), but instead has proposed three targeted amendments to the transition requirements of IFRS 17:

-       MRA and FVA: Business combinations – for contracts acquired in a business combination that have already incurred claims prior to the date that they were acquired by the entity, the entity may classify liabilities arising from such contracts as “liabilities for incurred claims” (instead of “liabilities for remaining coverage”) at the date of transition. 

-       FRA, MRA and FVA: Risk mitigation – an entity may apply the risk mitigation option prospectively on or after the transition date if and only if the entity designates risk mitigation relationships at or before the date it applies the option.

FVA: Risk mitigation – an entity may choose to use the fair value approach to measure groups of insurance contracts that would otherwise be measured using the FRA, if it chooses to apply the risk mitigation option prospectively after the date of transition to IFRS 17, and if it has used derivatives or reinsurance contracts to mitigate financial risks before the transition date.

C3(b), C5A, C9A, C22A and BC119–BC146

The exposure draft also proposes a number of minor amendments (see paras. BC148−BC163) intended to clarify the terminology of IFRS 17 or to correct unintended consequences, omissions and conflicts between the requirements of IFRS 17 and those of other standards, such as IFRS 9.

It should be noted that the IASB has decided against amending IFRS 17 at this stage on a number of topics identified by stakeholders, which may continue to pose implementation challenges or risk failing to faithfully represent the performance of contracts within the scope of IFRS 17 over the coming years. These include:

  • the requirement to group contracts into annual cohorts;
  • the lack of separate presentation of premiums receivable in the statement of financial position;
  • the prohibition on applying the VFA (variable fee approach) to reinsurance contracts issued and held;
  • the retention of paragraph B137 of IFRS 17, which relates to interim financial statements and stipulates that insurers shall not change the treatment of accounting estimates made in previous interim financial statements. This paragraph sets out an exception to the general principle of IAS 34, which states that the frequency of an entity’s reporting shall not affect the measurement of its annual results.

The exposure draft is available on the IASB’s website.