In this chapter, we provide a general overview of the forthcoming international financial reporting standard (IFRS) for insurance contracts, outlining the key aspects of the standard. We also provide KPMG professionals’ perspectives regarding the efforts to create a globally consistent accounting framework for insurance contracts and discuss how this may interact with the IAIS’s work.
The current IFRS 4 Insurance Contracts enablesonly limited comparability between peers within the insurance industry because it allows insurance contract liabilities to be measured in accordance with accounting policies grandfathered from local accounting regimes. Non-uniform accounting policies may be used in consolidated IFRS financial statements if this was permitted under the group’sprevious accounting policies, such as in financial statements prepared in accordance with EuropeanUnion (EU) Directives.
During 2015, the International Accounting Standards Board (IASB) made significant progress in its Insurance Contracts project to deliver a standard that will provide comparability within the insurance industry. It has now completed planned technical deliberations and has begun drafting the forthcoming insurance contracts standard. It expects to issuethe final standard around the end of 2016, meaning an expected mandatory effective date of 1 January 2020 or 2021, with early adoption permitted. A final decision regarding an effective date will be taken bythe IASB later this year.
Regardless of the timing of the practical application ofthe standard, it is clear that the IAIS cannot wait forits issuance to meet its own challenging timeline forprogressing towards a final insurance capital standard (ICS). However, now that the technical decision making has been completed, the IAIS could revise its proposals and potentially incorporate some of the key requirements of the standard, where meaningful to do so, to ensure greater harmonization between accounting and regulatory valuation bases at a later date. For this reason, it is important to recognize that the changes to be introduced to the IFRS mayalso have regulatory impacts. The main accounting perspectives are discussed on the following pages.
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