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In a letter dated 14 July and addressed to the Chancellor of the Exchequer, Philip Hammond, Aviva, Legal & General (L&G) and Prudential warned the standard would cost “billions” to implement and “add risk to the UK during Brexit”.
The IASB hoped IFRS 17 would enhance financial stability by forcing insurers to apply a common global accounting model for their liabilities at a time when they face growing pressure from record-low interest rates. In the case of UK insurers such as Aviva, L&G and Prudential, their liabilities include those transferred from defined benefit schemes through buy-in or buyout transactions.
IFRS currently lacks an insurance liability accounting model and effectively tells insurers to calculate their liabilities using local accounting rules. In their letter, the insurers called for local rules to be retained.
News of the insurers’ lobbying comes as civil servants race to develop a new UK-only endorsement mechanism for the IASB’s standards after the UK quits the EU.
Meanwhile, separate HM Treasury (HMT) minutes also showed that, in meetings with officials this summer, the insurers argued the new standard would cost as much as Solvency II to implement but for little tangible benefit. Legal & General’s team told Treasury officials IFRS 17 was likely to cost around £200m (€224m) to implement.
Aviva said the “radical” proposal would need a “significant period of testing”. L&G said a year-long period of testing was likely required “to identify and iron out the problems”.
The Treasury appeared to be taking the insurers’ concerns seriously. A record of a meeting on 15 August between HMT and Prudential noted that a Treasury official advised the Prudential that “the case against IFRS 17 would be strengthened if accompanied by a more detailed evidence base”.
The comment is the strongest hint yet that Brexit could derail IFRS 17. The European Commission has yet to endorse the standard.