EFRAG assesses that the temporary exemption from applying IFRS 9 is addressing all the concerns relating to the misalignment of IFRS 9 and the new insurance contracts Standard, in contrast to the overlay approach which is addressing only the accounting mismatches. However, EFRAG has been made aware that the overlay approach is a suitable approach for some banks which carry insurance activities. As a result, EFRAG supports both approaches as being complementary.
To maintain as level a playing field as possible in the insurance sector, EFRAG believes that the temporary exemption from applying IFRS 9 should be available to as many entities as possible that are significantly impacted by the interaction between IFRS 9 and IFRS 4. Further, EFRAG considers that the temporary exemption from applying IFRS 9 should not be extended to banking activities that are material at the reporting entity level. Therefore, EFRAG assesses the IASB approach as being both too restrictive and too broad (a limited number of insurers would qualify for the temporary exemption from applying IFRS 9 whilst the IASB’s proposed predominant activity criterion applied at reporting entity level would exempt some material banking activities from applying IFRS 9). Therefore, EFRAG proposes that:
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the issuance of a significant amount of insurance contracts within the scope of IFRS 4 be a necessary condition to apply the temporary exemption from applying IFRS 9;
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entities should be allowed to apply either a widened predominant activity criterion or a regulated entity criterion to identify whether the temporary exemption from applying IFRS 9 can be applied; and
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the temporary exemption from applying IFRS 9 can be applied either at or below reporting entity level.
Finally, EFRAG agrees with the expiry date set for the temporary exemption from applying IFRS 9 because the new insurance contracts Standard should be finalised as soon as possible and, in any event, no later than this date. EFRAG disagrees with identifying the overlay approach as a backstop in case of a possible delay in the finalisation of the new insurance contracts Standard.
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© EFRAG - European Financial Reporting Advisory Group
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