The IASB has issued IFRS 17 ‘Insurance Contracts’, replacing the similarly titled IFRS 4 which was issued some time ago as an interim Standard.
IFRS 17 solves the comparison problems created by IFRS 4 by requiring all insurance contracts to be accounted for in a consistent manner, benefiting both investors and insurance companies. Insurance obligations will be accounted for using current values instead of historical cost, ending the practice of using data from when a policy was taken out. The Standard introduces insurance contract measurement principles requiring:
Day one profits should be deferred as a contractual service margin and allocated systematically to profit or loss as entities provide coverage and are released from risk.
Revenue is no longer equal to written premiums but to the change in the contract liability covered by consideration.
A separate measurement model applies to reinsurance contracts held. Modifications are allowed for qualifying short-term contracts and participating contracts.
Increased disclosure requirements apply.
IFRS 17 has an effective date of 1 January 2021 but may be applied earlier (subject to considerations imposed by local legislation). As noted in IFRS Alert 2016-07, the IASB made narrow scope amendments to IFRS 4 'Insurance Contracts' in September of last year in order to provide temporary accounting solutions for the practical challenges of implementing IFRS 9 'Financial Instruments' before IFRS 17.
