Insurance Accounting Alert September 2016

IASB issues amendments to IFRS 4 to address the different effective dates of IFRS 9 and IFRS 17

Overview What you need to know ►► The temporary exemption enables eligible entities to defer the On 12 September 2016, the International ►► The IASB issued amendments to implementation date of IFRS 9. Accounting Standards Board (IASB or the IFRS 4 to address issues arising The overlay approach allows an Board) issued Applying IFRS 9 Financial from the different effective dates entity applying IFRS 9 from 2018 Instruments with IFRS 4 Insurance of IFRS 9 and the upcoming new onwards to remove from profit Contracts (Amendments to IFRS 4) (the insurance contracts standard or loss the effects of some of the amendments). The amendments change IFRS 17 (previously referred to as accounting mismatches that may the existing IFRS 4 Insurance contracts IFRS 4 Phase II). occur from applying IFRS 9 before (IFRS 4) to allow entities issuing insurance contracts within the scope of IFRS 4 ►► Entities issuing insurance contracts IFRS 17 is applied. to mitigate certain effects of applying will still be able to adopt IFRS 9 on IFRS 9 Financial Instruments before 1 January 2018. the IASB’s new insurance contracts ►► The amendments introduce standard (referred to as IFRS 17 two alternative options for Insurance Contracts) becomes effective. entities issuing contracts within The amendments help to resolve issues the scope of IFRS 4, notably a arising from the different effective temporary exemption and an dates for IFRS 9 (1 January 2018) and overlay approach. IFRS 17 (still to be decided, but not before 1 January 2020). Reasons for issuing the Overview of the amendments How we see it amendments Entities issuing insurance contracts will still In July 2014, the IASB issued the be able to adopt IFRS 9 on 1 January 2018 Insurers will welcome the possibility completed version of its new standard without any further specific changes. In to defer implementation of IFRS 9 on financial instruments, IFRS 9, with addition, the amendments introduce two until IFRS 17 becomes effective (or, if an effective date of 1 January 2018. alternative options that will allow entities earlier, 1 January 2021). Even though During the re-deliberations on the issuing contracts within the scope of there will be reduced comparability Board’s insurance contracts project, IFRS 4: between insurers and other entities many constituents commented that the that apply IFRS 9 for a number of 1. To apply a temporary exemption from effective dates of IFRS 9 and IFRS 17 years, the IASB’s desire to address applying IFRS 9 until the earlier of should be aligned. As a result of delays to the consequences of having different the effective date of a new insurance the anticipated timetable of the insurance effective dates for IFRS 17 and IFRS 9 contracts standard and annual contracts project, the Board concluded is understandable. The solution will be reporting periods beginning on or that it would be impossible to issue IFRS 17 optional so companies can still apply after 1 January 2021. This exemption with an effective date aligned with IFRS 9 IFRS 9 without an adjustment starting will only be available to entities whose and decided instead to amend IFRS 4 to 1 January 2018. activities are predominantly connected address constituents’ requests to permit with insurance (temporary exemption) Insurance groups will need to insurers to defer the application of IFRS 9. finalise their analyses to determine Or Constituents requested deferral of IFRS 9 whether they are eligible for the because misaligned effective dates would 2. Adopt IFRS 9 but, for designated temporary exemption and what the give rise to the following: financial assets, remove from profit impact of IFRS 9 will be at group or loss the effects of some of the level. In addition, insurance groups 1. Additional accounting mismatches and accounting mismatches that may will also need to evaluate whether temporary volatility in profit or loss if occur before IFRS 17 is implemented the temporary exemption would be IFRS 9 were applied before IFRS 17 (overlay approach) available for the individual financial 2. Reassessment of the classification statements of any subsidiaries within The amendments make these alternative and measurement of financial assets the group. options part of IFRS 4, rather than under IFRS 9 when adopting IFRS 17 to changing IFRS 9. The effective date of IFRS 9 minimise accounting mismatches (1 January 2018) is approaching 3. Two sets of major accounting change Temporary exemption rapidly, therefore, insurance in a short space of time resulting in companies need to conclude which The temporary exemption can only significant cost and effort for both approach they will take towards be applied by a reporting entity if its users and preparers of financial applying IFRS 9 together with IFRS 17 activities are predominantly connected statements as soon as possible. with insurance, and it has not applied The Board evaluated these concerns and IFRS 9 previously.3 As the exemption 1. Liabilities arising from contracts within concluded that the existing options in is meant to be temporary, it will not be the scope of IFRS 4, which include any IFRS 41 and the transition requirements in available for reporting periods starting on deposit components or embedded the future insurance contracts standard2 or after 1 January 2021. derivatives that are unbundled from were not sufficient to address the Predominance assessment insurance contracts in accordance issues raised. with IFRS 4 The assessment for whether a reporting The resulting amendments to IFRS 4 entity’s activities are predominantly 2. Non-derivative investment contract are intended to address accounting connected with insurance is based on liabilities measured at fair value mismatches (and the resulting additional the liabilities connected with insurance in through profit or loss applying temporary volatility in profit or loss) arising proportion to the entity’s total liabilities. IAS 39 Financial Instruments: from the different effective dates of IFRS 9 For this purpose, liabilities connected with Recognition and Measurement and IFRS 17. These amendments also insurance comprise: address the concerns over the additional cost and effort for preparers and users of financial statements as a result of applying two consecutive sets of major accounting changes in a short period of time.

1The existing IFRS 4 allows entities to change accounting policies voluntarily for insurance contracts if the change makes the financial statements more relevant to the economic decision-making needs of users, but no less reliable (or vice versa). In addition, the existing IFRS 4 allows the selection of current market interest rates for the discounting of insurance liabilities and the adoption of shadow accounting. 2As part of its insurance contracts project, the Board plans to include transition provisions in the new insurance contracts standard that allow insurers to revisit certain areas of the classification and measurement of financial assets under IFRS 9 when adopting the new insurance contracts standard. 3IFRS 9 allows an entity to early apply the “own credit” requirements for non-derivative financial liabilities before the final version of IFRS 9 is applied. These provisions require an entity to present in OCI the fair value gains and losses attributable to changes in the entity’s own credit risk for non-derivative financial liabilities designated as measured at FVPL. An entity may still choose to apply the temporary exemption if it early applied these ‘own credit’ requirements or decide to early adopt these requirements in a later year and continue to apply the temporary exemption.

Insurance Accounting Alert September 2016 | 2 3. Liabilities that arise because the insurer ►► The carrying amount of its liabilities In assessing whether the entity does issues, or fulfils, obligations arising arising from contracts included under not engage in a significant activity from the contracts in (1) and (2) above (1) above, is significant compared to unconnected with insurance, it should the total carrying amount of all its consider quantitative or qualitative The amendments mention as examples liabilities factors (or both), including publicly of items that will qualify under point (3) available information such as the industry above, the following: derivatives used to ►► The percentage of the total carrying classification that users of financial mitigate risks arising from those contracts amount of its liabilities connected with statements apply to the insurer. When referred to under points (1) and (2) and insurance, included under (1) through performing this assessment, the entity from the assets backing those contracts; (3) above, relative to the total carrying only takes into account those activities relevant tax liabilities such as the deferred amount of all of its liabilities is from which it may earn revenues and tax liabilities for temporary taxable 1. Greater than 90 per cent incur expenses. Diagram 1 illustrates the differences on liabilities arising from those possible outcomes of the assessment of contracts; and debt issued that is included Or the eligibility for the temporary exemption. in the insurer’s regulatory capital as 2. Less than or equal to 90 per cent liabilities that arise to fulfil contracts within but greater than 80 per cent, and the scope of IFRS 4. the insurer does not engage in a An entity may elect the temporary significant activity unconnected exemption if, and only if: with insurance

Diagram 1: Assessment of eligibility for temporary exemption

90% Additional Assessment: 80% ►► Qualitative ►► Quantitative Predominance percentage Predominance

Insurance liabilities, Investment contracts with DPF, IAS 39 liabilities as at FVPL

‘Other liabilities’ connected with insurance activities

Liabilities not connected with insurance activities

The Board decided that an entity should (the predominance percentage) using the date). This time frame is intended to reduce calculate the percentage of the total carrying amounts of liabilities reported on uncertainty about whether an entity needs carrying amount of its liabilities connected its balance sheet at the annual reporting to adopt IFRS 9 in 2018, and thereby with insurance relative to the total date after 31 March 2015 and before provide time to plan for implementation. carrying amount of all of its liabilities 1 April 2016 (i.e., the initial assessment

Insurance Accounting Alert September 2016 | 3 Example 1: Calculation of the predominance percentage A reporting entity has the following gross liabilities at its financial statements for the period ending 31 December 2015:

CU Insurance contract liabilities 500 Investment contract liabilities at FVPL 200 Debt issued for regulatory capital purposes 100 Derivatives used for hedges of insurance liabilities 60 Deferred tax liabilities on insurance contract liabilities 50 Banking liabilities (e.g., customer deposits) 90 Total liabilities 1,000 Predominance percentage = 91% (i.e., (500+200+100+60+50)/1,000). Therefore, the reporting entity qualifies for the temporary exemption from IFRS 9.

Reassessment of predominance ►► The beginning of its second annual entity level. A conglomerate financial An entity that elected to apply the period after the change in activities that institution would determine whether it temporary exemption will be required to changed its predominant activities is eligible for the temporary exemption approach on the basis of the consolidated reassess whether its activities are still Or predominantly connected with insurance financial statements of the conglomerate. if, and only if, there has been a change ►► Its annual reporting period that begins If this reporting entity then chooses to in the activities of the entity that results on or after the fixed expiry date of apply the temporary exemption, all the in starting or ending an activity that is the temporary exemption (annual financial instruments in the consolidated significant to its operations or significantly reporting periods beginning on or after financial statements of the reporting entity changes the magnitude of one of its 1 January 2021). will continue to be accounted for under IAS 39 Financial Instruments: Recognition activities, for example, when the entity An entity that, upon the initial and Measurement. has acquired, disposed of or terminated a predominance assessment (made using the business line, the IASB expects changes carrying amounts of liabilities reported at Subsidiaries within the conglomerate that in business that lead to a reassessment of the annual reporting date after 31 March issue their own (separate, individual or predominance to be very infrequent. 2015 and before 1 April 2016), did not consolidated) IFRS financial statements Upon reassessment, an entity should re- qualify for the temporary exemption is would assess the eligibility criteria at their calculate the predominance percentage at allowed to reassess predominance at an reporting entity level for the purpose of the end of the annual reporting period in annual reporting date before 31 December their financial statements. 2018 if, and only if, there was a change in which the change in activities takes place. Diagram 2 provides an overview of the the insurer’s activities. If the entity concludes that its activities are application of the temporary exemption at no longer predominantly connected with Level of assessment the reporting entity level. insurance, the entity is required to apply The temporary exemption applies to all IFRS 9 from the earlier of: financial instruments at the reporting Diagram 2: Determining eligibility at the reporting entity level

IFRS 9 IAS 39

►► If the predominant activity of the ►► If the predominant activity of the conglomerate conglomerate is an insurance business is not an insurance business

HoldCo HoldCo

Sub A Sub B Sub A Sub B Insurance activities Banking activities Insurance activities Banking activities

►► The conglomerate could have the option to ►► The conglomerate must apply IFRS 9 to all financial continue to apply IAS 39 to all financial assets assets in consolidated financial statements in consolidated financial statements ►► However, if Subsidiary A publishes stand-alone ►► However, if Subsidiary B publishes stand-alone financial statements, it could have the option to financial statements, it must apply IFRS 9 continue to apply IAS 39

Source: IASB Project Overview “Application of the new accounting requirements for financial assets by insurers”

Insurance Accounting Alert September 2016 | 4 The amendment does not allow ►► If the carrying amount of its liabilities financial assets separately: determination of eligibility for, and arising from contracts within the scope 1. Financial assets that would meet the application of, the temporary exemption of IFRS 4 is less than or equal to 90 per “solely payments of principal and below the reporting entity level in the cent of the total carrying amount of all interest” (SPPI) characteristic test in financial statements of that reporting its liabilities, the nature and carrying IFRS 9 (but excluding any financial entity. The Board concluded that amounts of the liabilities connected assets that meet the definition of held application below the reporting entity level with insurance that are not liabilities for trading in IFRS 9 or are held at fair would be challenging and complex as a arising from contracts within the value through profit and loss because result of, for example, the simultaneous scope of IFRS 4 they are managed and performance is application of IAS 39 and IFRS 9 by the ►► If the percentage of its liabilities evaluated on a fair value basis) same entity, the existence of different connected with insurance to the total legal definitions of an insurance entity, 2. All financial assets other than those carrying amount of all its liabilities and the possibility of transfers of financial included in (1) is less than or equal to 90 per cent assets between different components of a but greater than 80 per cent, how In addition, an entity needs to disclose reporting entity. the entity determined that it has no information about the credit characteristics The amendment provides an exemption significant activity that is unconnected of financial assets by presenting: from applying uniform accounting policies with insurance, including what ►► For all financial assets included in (1) within a group when applying the equity information it considered above, the gross carrying amounts method under IAS 28 Investment in If an entity’s activities connected with under IAS 39 aggregated by credit risk Associates and Joint Ventures in the insurance would become predominant rating grades as defined in IFRS 7 (in following situations: after a reassessment before 1 January the case of financial assets measured at ►► The entity applies IFRS 9, but its 2018 and it elects to use the temporary amortised cost, before deducting any associate or joint venture applies the exemption for its annual reporting period impairment amounts) temporary exemption from IFRS 9 starting 1 January 2018, the entity ►► For financial assets included in (1) discloses the reason for reassessment, a Or above that do not have low credit risk detailed explanation on why it is eligible for as defined in IFRS 9, the fair value ► The entity applies the temporary the temporary exemption, and the date on ► and the gross carrying amounts exemption from IFRS 9, but its which the related change in its activities under IAS 39 associate or joint venture applies took place. IFRS 9 If an entity applies the temporary If an entity’s activities connected with exemption from IFRS 9 when accounting In the former situation, an entity applies insurance would no longer be predominant for its investment in an associate or joint IFRS 9, but is permitted to use the IAS 39 and it would have to start applying venture using the equity method, the entity figures of an associate or joint venture IFRS 9 from the beginning of the next must provide the temporary exemption when accounting for that investment annual reporting period, the entity disclosures for: under the equity method. In the latter discloses the fact that it is no longer situation, an entity applies the temporary eligible for the temporary exemption a ►► Each of those associates or joint exemption from IFRS 9, but is permitted detailed explanation why it is no longer ventures that is material to the entity, to use the IFRS 9 figures of an associate eligible, and the date on which the related showing the amounts included in or joint venture when accounting for that change in its activities took place. the IFRS financial statements of investment under the equity method. the associate or joint venture after To enable comparison with entities reflecting any adjustments made by the This exemption to uniform accounting applying IFRS 9, an entity needs to disclose entity when using the equity method policies under IAS 28 is available on an information about where a user can obtain (rather than the entity’s share of investment-by-investment basis. any publicly available IFRS 9 information those amounts) that relates to an entity within the group Disclosure that is not provided in the consolidated ►► All of those associates or joint ventures Because the Board decided that the financial statements of that entity. that are individually immaterial, temporary exemption should be optional For example, such IFRS 9 information showing the entity’s share of those rather than mandatory, it requires could be obtained from the publicly amounts included by applying the disclosures that both explain how an entity available individual (or separate) financial equity method with disclosure of qualified for the temporary exemption, statements of a company within the group aggregate amounts for associates and and allow comparison with other entities that has applied IFRS 9 (e.g., a banking joint ventures separately applying IFRS 9. subsidiary). If a reporting entity chooses to apply the To provide information on the temporary exemption, it must disclose this characteristics of its financial assets, an fact along with an explanation of how it entity will need to disclose the fair value determined its eligibility, in particular: at the end of the reporting period and the amount of change in the fair value during the period for the following two groups of

Insurance Accounting Alert September 2016 | 5 Overlay approach on the incurred loss model under IAS 39 How we see it for financial assets to which the overlay The overlay approach can be applied by approach is applied and on the expected Preparing for the disclosures under an entity that both issues contracts in the credit loss model under IFRS 9 for other the temporary exemption will require scope of IFRS 4 and applies IFRS 9. The instruments. significant effort, in particular, with overlay approach allows an insurance respect to implementing processes entity to exclude from profit or loss certain Designation and systems for the SPPI test and for effects of IFRS 9 and reclassify these An instrument-by-instrument designation determining which assets do not have amounts to other comprehensive income means that an entity is not required to “low credit risk”. (OCI) for certain financial assets. The apply the overlay approach to all financial While the amendment does not following financial assets are eligible for assets that are eligible. Instead, the entity require quantitative disclosures for designation under the overlay approach: can chose to which eligible financial financial assets that are managed on assets it applies the overlay approach. ►► Assets measured at FVPL applying The Board concluded that there may be a fair value basis, it does not make IFRS 9 which would not have been eligible financial assets for which the entity any reference to exempting assets measured at FVPL in its entirety might reasonably decide that the cost of that are carried at fair value through applying IAS 39 profit and loss (FVPL) on the basis of applying the overlay adjustment outweighs a designation to avoid an accounting ►► Assets except for those held in respect any benefits in reducing volatility in mismatch. This implies that companies of an activity that is unconnected with profit or loss. contracts within the scope of IFRS 4. will need to apply the SPPI test to such The initial designation of a financial asset (Examples of assets unconnected to assets, even though these assets are as relating to contracts within the scope of contracts within the scope of IFRS 4 currently measured as at FVPL under IFRS 4 should be retained until the asset are: financial assets held by a banking IAS 39 and may also be continued is derecognised by the entity. However, if subsidiary that does not issue insurance to be measured on that basis an entity previously designated an asset contracts and financial assets held in under IFRS 9. under the overlay approach, but the funds relating to investment contracts asset is no longer used for an activity that that are outside the scope of IFRS 4.) Transition is connected with contracts within the An entity will have the option to stop Eligible financial assets can be designated scope of IFRS 4, the entity is required to applying the temporary exemption at the for the overlay approach on an instrument- de-designate this asset. For example, an beginning of any annual reporting period by-instrument basis. The amendments asset that is transferred from an insurance before IFRS 17 becomes effective. An refer to such assets as “designated business segment to a non-insurance entity will be required to stop applying the financial assets”. business segment. Furthermore, an entity temporary exemption for annual reporting may newly designate a financial asset The amount reclassified to OCI (overlay periods beginning or after 1 January 20214 if circumstances change and the asset adjustment) for designated financial assets or, if earlier, when it no longer qualifies meets the eligibility criteria for the overlay is determined as the difference between: based on a change in the activities. When approach after the change but did not do an entity stops applying the temporary ►► The amount reported in profit or loss in so before. This would be the case if an exemption and applies IFRS 9 for the first accordance with IFRS 9 asset was previously held for an activity time, the entity should follow the transition And that is unconnected with contracts within provisions in IFRS 9. the scope of IFRS 4 but has now been ►► The amount that would have been transferred to an insurance activity. Once an entity has adopted IFRS 9 in its reported in profit or loss if the entity entirety or in connection with the overlay had applied IAS 39 When a financial asset first meets the approach, it is not permitted to stop eligibility criteria and the entity elects applying IFRS 9 and revert to applying As a result, an entity applies IFRS 9 in to apply the overlay approach to the IAS 39 under the temporary exemption. the Statement of Financial Position (SFP, asset, it must do so on a prospective or balance sheet) and the Statement basis. The newly designated asset’s fair How we see it of Comprehensive Income (SCI), but value at the date of designation will be eliminates the additional impact of IFRS 9 its new amortised cost carrying amount, Many insurers will welcome the in profit or loss for all financial assets to with the effective interest rate to be amendment by the IASB to introduce which the overlay approach is applied determined on the basis of that fair value. the option to defer the adoption of (i.e., the designated financial assets). When a financial asset no longer meets IFRS 9, with the expectation that this Accordingly, profit or loss would be the the eligibility criteria, the amount of the temporary exemption will allow them same as it would have been under IAS 39 overlay adjustment in accumulated OCI for to align the adoption dates of IFRS 9 for designated financial assets and the that asset will be immediately reclassified with IFRS 17. As such, the expiry date profit or loss amount reported by the (recycled) to profit or loss. of 1 January 2021 for the temporary entity contains a mix of IFRS 9 and IAS 39 exemption will be seen as indicating measurements for financial assets. To address any concerns about the that the Board will aim for this as the For example, impairments would be based potential to transfer or redesignate effective date for IFRS 17.

4 The temporary exemption will also end when IFRS 4 is superseded by the new insurance contracts standard, which is expected to be issued in the course of 2017. The Board has not yet determined an effective date for the new insurance contracts standard. Insurance Accounting Alert September 2016 | 6 financial assets to achieve a particular ►► Each of those associates or joint accounting outcome, entities will have ventures that is individually material How we see it to disclose the effects on profit or loss to the entity’s financial statements, Unlike the temporary exemption, the and OCI of financial assets that move showing the amounts included in overlay approach does not apply a in and out of the overlay approach as a the IFRS financial statements of predominance threshold, but is based result of transfers within the group or the associate or joint venture after on a designation of eligible financial re-designation (see below). reflecting any adjustments made by the assets. Entities not qualifying for entity when using the equity method Presentation and disclosure the temporary exemption could still (rather than the entity’s share of make use of the overlay approach. The entity must present a separate those amounts) line item for the amount of the overlay However, the application of the adjustment in profit or loss, as well as a ►► All of those associates or joint ventures overlay approach, and the calculations separate line item for the corresponding that are individually immaterial but required to implement it, are likely adjustment in OCI. As such, the Board are material in aggregate to the to be complex. This will particularly requires an explicit presentation of the entity’s financial statements, showing be the case when the accounting overlay adjustment on the face of the SCI. the entity’s share of those amounts for insurance contract liabilities is included by applying the equity affected by the amount of investment An entity that applies the overlay approach method with disclosure for aggregate income recognised in profit or loss (for will have to make disclosures for each amounts for associates and joint example, for insurers applying shadow reporting period about the fact that it ventures separately accounting). Furthermore, entities will applies the overlay approach, the classes have to maintain processes, systems Transition and carrying amounts of financial assets and data to enable parallel reporting to which it applies the overlay approach, An entity may start applying the overlay under IAS 39 and IFRS 9. and the basis for the assets to which the approach when it applies IFRS 95 for the overlay adjustment is applied. first time. On transition to IFRS 9, the First time Adopters overlay approach, if selected, must be The amendments also require that entities applied retrospectively to designated The amendment permits an entity that provide an explanation of the amount of financial assets, resulting in an adjustment applies IFRS for the first time in its financial the total overlay adjustment in each period to the opening accumulated OCI of the statements (first-time adopter or FTA) to in a way that enables users of the financial earliest period presented based on the apply either: statements to understand how it is derived, difference between: including the total amounts that would be ►► The temporary exemption if the entity recognized in profit or loss under IAS 39 ►► The fair value of financial assets to meets the qualifying criteria. To assess and IFRS 9. The entity must also disclose which the overlay approach is applied whether it meets the predominance the effect the overlay adjustment has on criterion on the date of initial And each affected line item in profit or loss. assessment (i.e., the annual reporting ►► The carrying amount of these assets date after 31 March 2015 and before If an entity changed the designation of determined in accordance with IAS 1 April 2016) the FTA must use the financial assets during the reporting 39 immediately prior to transition to carrying amounts of liabilities applying period, it must disclose: IFRS 9 applicable IFRS standards ►► For newly designated assets: the If an entity restates comparatives under Or amount of overlay adjustment in profit IFRS 9, it should also restate comparative or loss and OCI in the period ►► The overlay approach to designated amounts for the overlay adjustment. financial assets. An FTA that applies ►► For de-designated assets: An entity must cease the application the overlay approach must restate ►► The amount of overlay adjustment of the overlay approach when it first comparative information to reflect that would have arisen in profit or applies IFRS 17. An entity is permitted the overlay approach when it loss and OCI in the period if financial to stop applying the overlay approach restates comparative information assets had not been de-designated in any reporting period before adopting in accordance with the provisions in IFRS 17. When an entity stops applying IFRS 1 on restatement of comparative ►► The amount of overlay adjustment the overlay approach, it accounts for a information for IFRS 9 in the period related to the change in accounting policy and adjusts reclassification of amounts in Under the temporary exemption, an FTA comparatives accordingly. accumulated OCI to profit or loss applies IAS 39 to its financial statements rather than IFRS 9 when adopting IFRS. If an entity applies the overlay approach for its investment in an associate or joint venture accounted for under the equity method, the entity must provide the overlay disclosures for:

5 IFRS 9 allows an entity to early apply the ‘own credit’ requirements for non-derivative financial liabilities before the final version of IFRS 9 is applied. An entity may still choose to apply the overlay approach if it early applied these ‘own credit’ requirements. Insurance Accounting Alert September 2016 | 7 Effective date the amendments is permitted if an entity Diagram 3 summarises the various adopts IFRS 9 early. The temporary implementation routes an entity may The amendments will become effective exemption and the overlay approach will choose from, based on three potential for reporting periods beginning on or only be available to an entity if it has not scenarios for the effective date of IFRS 17. after 1 January 2018. Early adoption of previously applied IFRS 9.

Diagram 3: Potential implementation routes

IFRS 17 effective date 2018 2019 2020 2021 2022

Option 1: IFRS 9

Scenario A: 2020 Option 2: IFRS 9 plus Overlay

Option 3: IFRS 9 Deferral

Option 1: IFRS 9

Scenario B: 2021 Option 2: IFRS 9 plus Overlay

Option 3: IFRS 9 Deferral

Option 1: IFRS 9

Scenario C: 2022 Option 2: IFRS 9 with Overlay

Option 3: IFRS 9 Deferral

Interaction with transition ►► Reassess the business model for An entity that adopts IFRS 9 at the same provisions for financial assets in classification and measurement of time it adopts IFRS 17 will be able to apply financial assets under IFRS 9 the transitional provisions of IFRS 9, which IFRS 17 also include certain designations and de- The entity is required to apply the designations of financial assets. Upon adoption of IFRS 17, an entity will classifications resulting from these either already be applying IFRS 9 or will transition provisions retrospectively have to stop applying IAS 39 and adopt (i.e., as if the financial assets had always What’s next IFRS 9 at that moment. Taking into been so classified). consideration the interaction between The Board’s next critical step for its insurance liabilities and the assets backing Entities that have previously applied insurance contracts project will be to these liabilities, the Board tentatively IFRS 9, will be permitted (but not required) issue IFRS 17, this is expected to be decided it will include transitional to restate comparative information about in the first half of 2017. provisions for the classification and financial assets under the transition measurement of financial assets in IFRS 17. provisions in IFRS 17, provided this is These transitional provisions would allow possible without hindsight. This approach the entity to: is in line with the transition provisions of IFRS 9, which do not require restatement ►► Make designations and de-designations and only permit it if this can be done of financial assets under the Fair without the benefit of hindsight. Value Option and the OCI presentation election for investments in equity instruments

Insurance Accounting Alert September 2016 | 8 Area IFRS contacts:

Telephone E-mail

Global Kevin Griffith + 44 20 7951 0905 [email protected] Hans van der Veen + 31 88 40 70800 [email protected] Martin Bradley + 44 20 7951 8815 [email protected] Conor Geraghty + 44 20 7951 1683 [email protected] Europe, Middle East, India and Africa Belgium Katrien De Cauwer + 32 2 774 91 91 [email protected] France Pierre Planchon + 33 1 46 93 62 54 [email protected] Germany Martin Gehringer + 49 6196 996 12427 [email protected] Germany Thomas Kagermeier + 49 89 14331 25162 [email protected] Germany Robert Bahnsen + 49 711 9881 10354 [email protected] India Rohan Sachdev + 91 226 192 0470 [email protected] Italy Matteo Brusatori + 39 02722 12348 [email protected] Israel Emanuel Berzack + 972 3 568 0903 [email protected] Netherlands Jasper Kolsters + 31 88 40 71218 [email protected] South Africa Burton Leach + 27 11 772 5437 [email protected] Spain Manuel Martinez Pedraza + 34 915 727298 [email protected] Switzerland Stefan Schmid + 41 58 286 3416 [email protected] Switzerland Philip Vermeulen + 41 58 286 3297 [email protected] UAE Sanjay Jain + 971 4312 9291 [email protected] UK Brian Edey + 44 20 7951 1692 [email protected] UK Nick Walker + 44 20 7951 0335 [email protected]

Americas Argentina Alejandro de Navarrete + 54 11 4515 2655 [email protected] Brazil Eduardo Wellichen + 55 11 2573 3293 [email protected] Canada Doru Pantea + 1 416 943 3997 [email protected] Mexico Tarsicio Guevara Paulin + 52 555 2838687 [email protected] USA Dana D’Amelio + 1 212 773 6845 [email protected] USA John Santosuosso + 1 617 585 1867 [email protected] USA Evan Bogardus + 1 212 773 1428 [email protected] Mexico Tarsicio Guevara Paulin + 52 555 2838687 [email protected]

Asia Pacific Australia Kieren Cummings + 61 2 9248 4215 [email protected] China (Mainland) Bonny Fu + 86 10 5815 3618 [email protected] Hong Kong Mike Wong + 852 28499186 [email protected] Hong Kong Tze Ping Chng + 852 28499200 [email protected] Hong Kong Peter Telders + 852 9666 2014 [email protected] Singapore Patrick Menard + 65 6309 8978 [email protected] Singapore Sumit Narayanan + 65630 96452 [email protected]

Japan Norio Hashiba + 81 33 503 1100 [email protected] Kazuya Kurimura + 81 33 503 1100 [email protected]

Insurance Accounting Alert September 2016 | 9 EY | Assurance | Tax | Transactions | Advisory

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