01 February 2016

ESMA comments on IASB’s ED Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

ESMA published its comment letters to the IASB and to EFRAG on the IASB’s ED Applying IFRS 9 with IFRS 4. ESMA accepts that both the overlay approach and the temporary exemption from applying IFRS 9 are needed to address different concerns raised by the insurance industry.

ESMA appreciates the efforts of the IASB to address any concerns and possible difficulties caused by the different effective dates of IFRS 9 and the new insurance contracts Standard. While ESMA would have preferred that IFRS 9 and the new insurance contracts Standards applied at the same time, ESMA acknowledges that this was not possible in light of the different progress of the two projects. In this context, ESMA encourages the IASB to finalise the new insurance contracts Standard without any additional delay as it is urgently needed to ensure transparency, comparability and a level playing field within the insurance industry.

ESMA strongly believes that IFRS 9 will improve the financial reporting of financial instruments in comparison with IAS 39 Financial Instruments: Recognition and Measurement, notably by introducing the expected loss model. Furthermore, ESMA firmly believes that it is of the utmost importance that the amendments to IFRS 4 do not create any uncertainties in the implementation process of IFRS 9 as in ESMA´s view, application of IFRS 9 requirements should not be subject to any further delay.

Consequently, ESMA is of the view that the application of IFRS 9 should not be delayed beyond what is needed to mitigate possible negative effects of different effective dates of IFRS 9 and the new Standard for insurance contracts that are currently in the scope of IFRS 4.

ESMA supports both the overlay approach and the temporary exemption from applying IFRS 9 as these address different issues depending on the type of business activities and group structures. While the existence of two complementary approaches further reduces comparability among entities, each of the approaches has its advantages and disadvantages when addressing the difference in the effective dates and each of them might be better suited for a different subset of entities issuing insurance contracts in the scope of IFRS 4.

In light of the diversity of activities related to issuance of the insurance contracts in the scope of IFRS 4, their pervasiveness in the overall business activities of insurance companies as well as different models for accounting for insurance contracts in the scope of IFRS 4, ESMA agrees that both approaches should be available on an optional basis. This also ensures that entities would not be prevented from adopting the improved financial reporting requirements brought by IFRS 9.

Full comment letter to the IASB

Full comment letter to the EFRAG

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