IFRS 17

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IFRS 17 is a forthcoming International Financial Reporting Standard that is anticipated to be released in the first half 2017. It is intended to replace IFRS 4 on accounting for insurance contracts and has an expected effective date of 1 January 2021.^[1]

Under the IFRS 17 model, insurance contract liabilities will be calculated as the present value of future insurance cash flows with a provision for risk.^[2] The discount rate will reflect current interest rates.^[3] If the present value of future cash flows would produce a gain at the time a contract is issued the model would also require a "contractual service margin" to offset the day 1 gain.^[2] The contractual service margin would amortize over the life of the contract.^[2] There would also be a new income statement presentation for insurance contracts, including a revised definition of revenue, and additional disclosure requireemnts.^[2]

IFRS 17 will also have accommodations for certain specific types of contracts. Shoet-duration insurance contracts will be permitted to use a simplified unearned premium liability model until a claim is incurred.^[2] And for some contracts in which the cash flows are linked to underlying items, the liability value will reflect that linkage.^[2]

In South Korea there is concern that the use of current interest rates, rather than book yields, to discount the insurance liabilities will cause some insurers to showsignificantly higher insurance liabilities.^[3][4] In other countries there are concerns about volatility of accounting results.^[5]

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