15/07/2019 - EFRAG's draft comment letter on the IASB's ED/2019/4 Amendments to IFRS 17

On 26 June 2019, the IASB issued the Exposure Draft ED/2019/4 Amendments to IFRS 17 (the 'ED') with a comment period ending on 25 September 2019.

The ED proposes targeted amendments to IFRS 17 Insurance Contracts to respond to concerns and challenges raised by stakeholders as IFRS 17 is being implemented.

In its draft comment letter, EFRAG commends the IASB for the thorough process to capture and analyse all the concerns and criticisms received and is broadly supportive of the changes proposed.

EFRAG expresses its appreciation for the consideration of the topics identified in its letter of 3 September 2018, however highlights the following issues:

• EFRAG agrees with the IASB's reporting objectives of the level of aggregation requirements in IFRS 17: depicting profit trends over time, recognising profits of contracts over the duration of those contracts and timely recognising losses from onerous contracts. EFRAG acknowledges that the annual cohort requirement is a trade-off between tracking individual contracts and ensuring the recognition of onerous contracts even where there are contracts with similar risks but different levels of profitability. Nonetheless, EFRAG considers that the requirement leads to unnecessary cost in some fact patterns, in particular for contracts with cash flows that affect or are affected by cash flows to policyholders of other contracts. EFRAG therefore believes that it is worth re-considering whether in certain cases the annual cohorts requirements are justified for such contracts. EFRAG recommends that the IASB consider developing an exception for such contracts, starting from paragraph BC138; the exception should be reflective of the reporting objectives of the level of aggregation requirements in IFRS 17.
• EFRAG remains concerned about implementation challenges faced by preparers when applying the modified retrospective approach and encourages the IASB to confirm in the main text of the final standard that the use of estimates is allowed, including those needed to approximate the missing information.
• EFRAG is of the view that the retrospective application of the risk mitigation option on transition is worthy of further attention.
• EFRAG considers that the necessary amendments to IFRS 4 Insurance Contracts extending the optional deferral of IFRS 9 need to be published as soon as possible and, at the latest, before the end of June 2020 so as to enable timely endorsement within Europe before the current expiry date of 1 January 2021.

The draft comment letter is requesting feedback on several topics, including input needed to assess the prevalence of some possible fact patterns that would not be fully captured by the scope of some of the amendments.

EFRAG requests comments on its draft responses to the questions raised in the ED and to the questions raised by EFRAG itself by 2 September 2019. You can comment on EFRAG's draft comment letter by clicking on the 'Comment publication' link below.

The draft comment letter is available here.