Global IFRS 17 Network

The IFRS Interpretations Committee agrees to finalise its agenda decision on the transfer of insurance coverage under a group on annuity contracts and to issue a tentative agenda decision on multi-currency groups of insurance contracts

On 15 June 2022, the IFRS Interpretations Committee (“IFRS IC”) agreed to finalise its agenda decision on Annuities, subject to the IASB not objecting, and agreed to issue a tentative agenda decision on multi-currency groups of insurance contracts. The industry (particularly in the UK) is not happy with the conclusion, however at least this gives certainty to all. Here is a summary of the decisions made:

1. Transfer of insurance coverage under a group of annuity contracts

The IFRS IC confirmed its conclusion reached at the March 2022 meeting that Approach A, which considers the constant annual benefit, meets the principle in paragraph B 119 of IFRS 17. Approach B, which considers the present value of the current and future benefits, is considered not to be consistent with IFRS 17. The IFRS IC agreed to finalise the agenda decision, subject to the IASB not objecting.

2. Multi-currency groups of insurance contracts

Within this topic, the IFRS IC discussed the following two issues: 

• how an entity considers currency exchange rate risk when identifying portfolios of insurance contracts under IFRS 17, and,

• how an entity applies IAS 21 when measuring a multi-currency group of insurance contracts under IFRS 17. 

Two approaches were presented:

• Approach A: a currency is assigned for the group of insurance contracts as a whole, including the contractual service margin; and,

• Approach B: the group of insurance contracts, including the contractual service margin, is considered to be denominated in multiple currencies reflecting the currencies of the fulfilment cash flows. Effectively, this approach allows division of a group into sub-groups (i.e. sub-CSMs) for foreign currency translation purposes only.

The IFRS IC tentatively concluded that:

• when identifying portfolios of insurance contracts in assessing whether contracts are subject to similar risks - all risks should be considered, including currency risk;

• when measuring a multi-currency group of insurance contracts, the entity should recognise and measure one contractual service margin for the group of insurance contracts;

• the whole group of insurance contracts should be treated as a monetary item; and,

• an accounting policy choice should be developed by the entity to determine the currency (or currencies) in which the group, including the contractual service margin, is denominated.

The IFRS IC decided to issue a tentative agenda decision, which will be subject to a public consultation, normally with a comment period of 60 days.