On 23 May, ESBG submitted its position paper to the International Accounting Standards Board (IASB) Interpretations Committee (IC)’s on IFRS 17 (standard for insurance contracts).
The IC is the interpretative body of the IASB. Its agenda decisions include explanatory material on how the applicable principles and requirements in IFRS Standards apply to the transaction or fact pattern described in the agenda decision.
The IFRS IC received a request in March about a group of annuity contracts, i.e. written agreement between an insurance company and a customer outlining each party’s obligations. The request questioned how an entity determines the amount of the contractual service margin (unearned profit that an entity expects to earn as it provides services) to recognise in the profit or loss statement in a period in case of survival of the policyholder at the end of the insurance policy term.
The Committee concluded that a method based on the amount of the annuity payment the policyholder is able to validly claim meets the principles of IFRS 17. Consequently, the Committee decided not to add a standard-setting project to the work plan.
On our part, ESBG believes that this does not correctly portray the insurance service provided under these contracts. We are of the opinion that an alternative approach based on the present value of expected future annuity payments would more accurately determine the quantity of insurance contract services provided by their contracts. As the policyholder has exchanged an insurance premium to get protection against the risk of surviving for an unexpected period of time, the value the policyholder obtains from the insurance contract is continuous over time.
In addition to this, IFRS 17 is a principle-based standard and should not prescribe a method for determining the quantity of the benefits provided under a group of insurance contracts. Finally, ESBG questions the timing of bringing a TAD less than one year before the date of first application of IFRS 17. ESBG would recommend this issue to be addressed in a post-implementation review together with other issues that were pending to be addressed as well as others that may arise in the future.
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