Insurance Contracts

Current Status Next Steps

Final standard issued by the IASB.

Second half of 2017 – AcSB to approve and issue final Handbook material.

BACKGROUND

The Accounting Standards Board (AcSB) is participating in the International Accounting Standards Board’s (IASB) project to develop a single source of principle-based guidance to account for all types of insurance contracts.

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A comprehensive, globally accepted, high-quality standard is needed to replace the wide variety of standards and practices currently applied to insurance contracts in different countries. Carried out jointly by the IASB and the Financial Accounting Standards Board (FASB), this project’s aim is to develop a comprehensive measurement approach for all types of insurance contracts issued by entities (and reinsurance contracts held by entities).

The standard will replace the interim standard, International Financial Reporting Standard (IFRS) 4 Insurance Contracts that allows insurers to continue using various existing national accounting practices.

The AcSB’s due process includes ensuring that Canadian entities’ financial reporting needs are considered by the IASB and issuing the AcSB’s own exposure draft on each IASB proposal.  Subject to the responses to the AcSB’s exposure draft on whether the IASB’s proposals are appropriate for application in Canada, the AcSB expects that the amendments will be incorporated into Canadian GAAP in accordance with the AcSB’s strategy of adopting IFRSs for publicly accountable enterprises.

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PROJECT NEWS & DECISION SUMMARIES

Final Standard – Insurance Contracts
May 23, 2017. The IASB has issued IFRS 17 Insurance Contracts, which replaces interim standard IFRS 4 and applies to all types of insurance contracts. IFRS 17 is effective for annual periods beginning on or after January 1, 2021 with earlier application permitted for companies that also apply IFRS 9and IFRS 15.

FYI Article – Get Ready. The Insurance Contracts Standard Is Coming!
February 21, 2017. The AcSB takes an active role in influencing the development of IFRSs and in endorsing a standard before incorporating it into Canadian GAAP.  Read this article to learn about extensive due process steps undertaken to date by the AcSB on the complex Insurance Contract standard.

AcSB Response – FASB Exposure Draft – Financial Services — Insurance
On December 15, 2016, the AcSB submitted a comment letter responding to the FASB's Exposure Draft issued in September 2016. The letter commends the FASB for moving to a current approach to the accounting for long-duration insurance contracts and agrees overall with the approach being proposed. The letter strongly supports the proposal for a discount rate that is a current market observable rate that is independent of the insurance entity’s expected return on its invested assets. The letter recommends that the discount rate be a principles-based rate that reflects the characteristics of the cash flows and the liquidity characteristics of the insurance obligation. The letter encourages common global adoption dates for these proposed targeted improvements and the IASB’s forthcoming new insurance standard to the extent this is reasonable. Read the AcSB’s response posted by the FASB.

AcSB Decision Summary – November 21-22, 2016
The AcSB discussed points to be included in its response letter to the U.S. Financial Accounting Standards Board (FASB) on its Exposure Draft, “Financial Services — Insurance.”

The AcSB encourages stakeholders to share their views on the FASB’s Exposure Draft by submitting comment letters to the FASB by December 15, 2016.

AcSB Decision Summary – April 20, 2016
Some AcSB members participated in an education session on the IASB’s forthcoming new standard on insurance contracts and recent developments in that project.

AcSB Decision Summary – March 22-23, 2016
The AcSB discussed the latest developments in the IASB’s Insurance Contracts project and the feedback the IASB received to its Exposure Draft, “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts.”  Board members advised the AcSB Chair on points to raise with the IASB at the April 2016 meeting of the Accounting Standards Advisory Forum (see the Forum’s Agenda Papers 6-6C).  No decisions were made.

AcSB Decision Summary – January 12, 2016 
The AcSB discussed concerns raised by stakeholders related to proposals on contractual service margin and transition in the forthcoming new insurance contracts standard, including receiving feedback from discussions at a meeting of the AcSB’s Insurance Accounting Task Force. No decisions were made.

AcSB Decision Summary – March 18-19, 2015
The AcSB provided input on matters to be discussed relating to the Revenue Recognition and Insurance Contracts projects at the Forum’s March 26-27, 2015 meeting in London, U.K.

AcSB Decision Summary – March 18-19, 2014
The AcSB discussed the comment letters received on the AcSB Exposure Draft, “Insurance Contracts,” as well as the Canadian stakeholders’ responses to the IASB Exposure Draft, “Insurance Contracts.” The AcSB also discussed recent deliberations of the IASB, and discussions between the AcSB and IASB representatives on this topic. No decisions were made.

AcSB Response – Insurance Contracts
On November 1, 2013, the AcSB submitted a comment letter responding to the IASB’s Exposure Draft issued in June 2013. The letter agrees with the fundamental principles in the proposed standard. The letter also sets out recommendations to amend some aspects of the proposed standard to result in financial reporting that would represent the economics of insurance contracts faithfully. In addition, the letter suggests ways of making the standard operational and enhancing the quality of its implementation on a global basis. The letter stresses the importance of the IASB and FASB renewing their efforts to work together in order to achieve a high-quality standard. Read the AcSB letter posted by the IASB.

AcSB Decision Summary – October 21, 2013
The AcSB discussed additional input from its Insurance Accounting Task Force, a public roundtable and other sources on the IASB’s Exposure Draft, “Insurance Contracts,” and reviewed a draft of its comment letter.

AcSB Decision Summary – October 9, 2013
The AcSB discussed additional input from its Insurance Accounting Task Force on the IASB’s Exposure Draft, “Insurance Contracts,” in developing the points to be included in the AcSB comment letter to the IASB. The AcSB also considered a presentation from the insurance industry on some field testing of the IASB’s proposals undertaken by Manulife Financial Corporation and three U.S.-based insurers. The AcSB and the IASB are holding Discussion Forums on the Exposure Draft in Toronto on October 21 and 23, 2013. The AcSB will consider the views expressed by stakeholders at the discussion forums and other meetings before finalizing its response. 

The AcSB also encourages Canadian stakeholders to respond to the IASB’s Exposure Draft by October 25, 2013. The AcSB issued its corresponding Exposure Draft to adopt the IASB’s proposed new standard into Canadian GAAP and requests comments by January 6, 2014 to allow sufficient time for interested stakeholders to respond.

AcSB Exposure Draft – Insurance Contracts
September 25, 2013. The AcSB has issued an Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic. Canadian stakeholders are encouraged to submit their comments, on the form provided, by January 6, 2013.

AcSB Decision Summary – September 11-12, 2013 
The AcSB discussed initial feedback from its Insurance Accounting Task Force on the IASB’s Exposure Draft, “Insurance Contracts,” and considered points to be included in the AcSB comment letter to the IASB on the proposals.

The AcSB and the IASB are holding Discussion Forums on the Exposure Draft in Toronto on October 21 and 23, 2013. The AcSB encourages stakeholders to participate in the discussion forums and share their views with IASB and AcSB members. The AcSB also encourages Canadian stakeholders to respond to the IASB’s Exposure Draft by October 25, 2013.

The AcSB also agreed to issue its exposure draft to adopt the IASB’s proposed new standard for a 90-day comment period. The exposure draft will be issued shortly.

IASB and AcSB Discussion Forum – Insurance Contracts
September 3, 2013. Attend a forum on October 21st or 23rd to discuss the proposed model on accounting for insurance contracts with members of the IASB and the AcSB. Register by October 2, 2013.

AcSB Decision Summary – July 10, 2013
The AcSB approved a plan on how to consult Canadian stakeholders in order to develop an informed response to the IASB’s Exposure Draft, “Insurance Contracts.”  In conjunction with the IASB, the AcSB plans to seek the advice of its Insurance Accounting Task Force and the views of interested User Advisory Council members on the proposals, and plans to hold discussion forums in October 2013. The AcSB will also meet with interested parties and organizations throughout the comment period.

IASB Exposure Draft – Insurance Contracts
June 21, 2013. The IASB has issued a revised Exposure Draft of a proposed standard on insurance contracts. Canadian stakeholders are encouraged to submit their comments to the IASB by October 25, 2013.

Decision to Re-expose Proposals – Insurance Contracts
October 1, 2012. The IASB has announced that the proposals for insurance contracts accounting will be re-exposed. Feedback will be sought only on a limited range of questions. Although the deliberations are not complete, the IASB believes re-exposure is warranted given the changes made and the importance of understanding the operationally of the proposals.

Roundtable Discussion – Insurance Contracts
July 11, 2012. IASB member, Darrel Scott, met with AcSB staff and various Canadian insurers to discuss the current proposals in the insurance project.

AcSB Response – Insurance Contracts
On November 30, 2010, the AcSB submitted a comment letter responding to the IASB’s Exposure Draft. The letter strongly recommends that the IASB and FASB give the highest priority to taking the time to deliberate constituents’ comments fully, resolving the differences between their approaches, and developing a common and high-quality standard. The letter fundamentally agrees with the IASB’s proposal to use the building block approach for determining a current measurement of insurance contracts, except for one aspect of the “time value of money” building block. To assist the IASB in developing a revised discount rate requirement, the letter includes the following alternative proposal for a two-step approach for reporting the interest cost on insurance liabilities. In profit or loss, an insurer would report the effect of discounting insurance liabilities using the long-term rate the insurer expects to earn on its investments. In other comprehensive income, an insurer would report the change in the difference between discounting the liability using the current market observable rate (i.e., a high-quality corporate rate) and the long-term expected rate of return on investments. The AcSB letter posted by the IASB is available here.

AcSB Decision Summary – November 29, 2010
The AcSB approved a response letter to the IASB's Exposure Draft, "Insurance Contracts."

AcSB Decision Summary – November 3, 2010
The AcSB directed its staff to continue developing a response to the IASB’s Exposure Draft, “Insurance Contracts.” The AcSB confirmed the views expressed on other recent IASB proposals that the IASB and the FASB should take the time to deliberate constituents’ comments fully, and to resolve the differences between their approaches and produce a common standard.

The AcSB agrees with the proposal to use a current basis of measurement for insurance liabilities and the proposed building block approach to determine these measurements. However, the AcSB decided to recommend that the IASB reconsider its discount rate proposal in order to provide more decision-useful information to financial statement users. The AcSB is developing an alternative to the IASB’s proposal.

The AcSB will finalize its comment letter in a meeting on November 29, 2010.

AcSB Decision Summary – October 13, 2010
The AcSB discussed a report on the initial deliberations of its Insurance Accounting Task Force on the International Accounting Standards Board’s (IASB's) Exposure Draft, "Insurance Contracts." No decisions were taken.

Exposure Draft – Insurance Contracts
September 29, 2010. The AcSB has issued an Exposure Draft that corresponds to the IASB’s ED on this topic. Comments, on the form provided, are requested by November 30, 2010.

Exposure Draft – Insurance Contracts
August 5, 2010.  The IASB has issued an Exposure Draft proposing a new International Financial Reporting Standard that would apply to all types of insurance contracts on a consistent basis.  The comment deadline is November 30, 2010.

AcSB Decision Summary – September 2008
The AcSB considered whether to retain its current guidance on insurance-related topics as guidance for applying IFRS 4 after the adoption of IFRSs.  Consistent with its general policy of adopting IFRSs without modification, the AcSB decided not to carry forward Section 4211, Life Insurance Enterprises — Specific Items, Guideline AcG-3, Financial Reporting by Property and Casualty Insurance Companies, Guideline AcG-8, Actuarial Liabilities of Life Insurance Enterprises — Disclosures, and Guideline AcG-9, Financial Reporting by Life Insurance Enterprises.

Adoption of IFRSs – February and July 2008
The AcSB consulted with several key stakeholders, including its Insurance Accounting Task Force, the Office of the Superintendent of Financial Institutions and representatives from the Canadian Institute of Actuaries, regarding the adoption of IFRSs. The AcSB considered its approach for dealing with its standards on insurance relative to IFRS 4 Insurance Contracts assuming that the IASB’s current project on insurance contracts will not be complete when Canada adopts IFRSs in 2011.

Insurance Accounting Task Force Response – Insurance Contracts
November 16, 2007.  The AcSB's Insurance Accounting Task Force, comprised of insurance industry accountants and auditors and an actuary, submitted its response to the IASB’s Discussion Paper, “Preliminary Views on Insurance Contracts.” This project and some others currently underway (for example, Revenue Recognition and Financial Statement Presentation) will have a substantial effect on Canadian insurance company accounting.

Discussion Paper – Insurance Contracts
May 2007. The IASB has issued a Discussion Paper, “Preliminary Views on Insurance Contracts.” The comment deadline is November 16, 2007.

 

Disclaimer: This project summary has been prepared for information purposes only. Decisions reported are tentative and reflect only the current status of discussions on this project, which may change after further Board deliberations. Decisions to publish Handbook material are final only after a formal ballot process.