17 February 2014

Insurance Europe: IFRS requirements must be consistent

Insurance Europe expects the finalisation of the international standard for accounting for financial instruments (IFRS 9) by the IASB this week, and calls for the standard to be compatible with that proposed for insurance contracts (IFRS 4 Phase II).

Insurance Europe welcomes the IASB’s efforts to ensure consistency between the two standards. It is of paramount importance to insurers that the standards appropriately reflect that they manage their liabilities, guarantees and related assets together.

Insurance Europe is pleased that the IASB has retained two fair value measurement categories in IFRS 9: one through other comprehensive income (FVOCI) and one through profit or loss (FVPL). However, it is concerned that IFRS 9’s fair value option for financial assets remains too restricted and prevents insurers from accounting for all of their activities on a FVPL basis, when consistent with their business model.

Moreover, Insurance Europe urges the IASB to amend the restriction on equities before issuing the final IFRS 9 standard. Although the standard has a FVOCI category for equity instruments, the restriction on recycling means that this approach is not consistent with the nature of the insurance liability. This is particularly true for participating contracts, where the investment returns (gains and losses) are ultimately passed to the policyholder or to the shareholders/owners. Not to show these movements in the profit and loss account would not provide a faithful representation of a company’s performance.

Press release

For further details see Insurance Europe’s March 2013 and September 2009 position papers on IFRS 9.

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