Response 3 - Keefe, Bruyette & Woods

File information

Publication date
18 January 2022
Format
PDF, 269.9 KB
Download original PDF

Deadline for completion of this Invitation to Comment:

Close of business 3 February 2022

Please submit to: [email protected]

Part A: Introduction

The objective of this Invitation to Comment from the UK Endorsement Board (UKEB) is to obtain input from stakeholders on the UK endorsement and adoption of IFRS 17 Insurance Contracts issued by the International Accounting Standards Board (IASB) in May 2017 and subsequently amended in June 2020 [and December 20211].

IFRS 17 is effective for annual periods beginning on or after 1 January 2023. Earlier application is permitted but only for entities that apply IFRS 9 Financial Instruments on or before the date of initial application of IFRS 17.

IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. It is intended to replace the current interim accounting standard on insurance contracts, IFRS 4 Insurance Contracts.

UK endorsement and adoption process

The requirements for UK endorsement and adoption are set out in the Statutory Instrument 2019/6852.

Who should respond to this Invitation to Comment?

Stakeholders with an interest in the quality of accounts of UK entities that issue insurance contracts and that apply IFRS.

How to respond to this Invitation to Comment

Please download this document, answer any questions on which you would like to provide views, and then return it along with the document 'Invitation to Comment - Your Details' to [email protected] by close of business on 3 February 2022.

Responses providing views on individual questions as well as comprehensive responses to all questions are welcome.

Privacy and other policies

The data collected through submitting this document will be stored and processed by the UKEB. By submitting this document, you consent to the UKEB processing your data for the purposes of influencing the development of and endorsing IFRS for use in the UK. For further information, please see our Privacy Statements and Notices and other Policies (e.g. Consultation Responses Policy and Data Protection Policy)3.

The UKEB's policy is to publish on its website all responses to formal consultations issued by the UKEB unless the respondent explicitly requests otherwise. A standard confidentiality statement in an e-mail message will not be regarded as a request for non-disclosure. If you do not wish your signature to be published on our website, please provide UKEB with an unsigned version of your submission. The UKEB prefers to publish responses that do not include a personal signature. Other than the name of the organisation/individual responding, information contained in the “Your Details" document will not be published. The UKEB does not edit personal information (such as telephone numbers, postal or e-mail addresses) from any other document submitted; therefore, only information that you wish to be published should be submitted in such responses.

Part B: Assessment against endorsement criteria

Section 1 Legislative framework and our approach to the assessment

  1. Do you have any comments on our approach to the assessment presented in Section 1 of our [Draft] Endorsement Criteria Assessment (ECA)?

No comment – outside my competence

  1. Do you agree that the finalisation of the amendment to IFRS 17 proposed in the IASB's Exposure Draft ED/2021/8 Initial Application of IFRS 17 and IFRS 9 – Comparative Information (Proposed Amendment to IFRS 17) is not likely to give rise to any issues that are significant for the purposes of our IFRS 17 ECA or adoption decision (paragraph 1.2 of [Draft] ECA)?
Yes No

If not, please provide an explanation.

No comment

Section 2 - Description of IFRS 17

  1. Do you have any comments on the summary of IFRS 17's requirements? Are there any other features of IFRS 17 that should be covered in this section?

I agree with para 2.2 that the proposed standard is the result of many years of discussion and outreach from the IASB. Their due diligence has been exemplary. Where there are risks, they seem mostly to stem from the need to compromise with stakeholder input over time.

Section 3 - Technical accounting criteria assessment

  1. Do you agree that the assessment in Section 3, together with Appendix B, captures all the priority and significant technical accounting issues?
Yes No

If not, please provide an explanation.

No comment

  1. CSM allocation for annuities: do you agree with the [tentative] assessment against the endorsement criteria (paragraphs 3.40 – 3.53)?
Yes ☑ No

If not, please provide an explanation.

Especially paras 3.48 / 3.50. Best practice emerging from the principles is an important process to work through.

  1. Discount rates: do you agree with the [tentative] assessment against the endorsement criteria (paragraphs 3.72 – 3.90)?
Yes ☑ No

If not, please provide an explanation.

Especially 3.90. It is important that disclosure leads to convergence of best practice as soon as possible.

  1. Grouping insurance contracts – profitability buckets and annual cohorts. do you agree with the [tentative] assessment against the endorsement criteria (paragraphs 3.101 – 3.116)?
Yes No

If not, please provide an explanation.

No comment

  1. With-profits – inherited estates: do you agree with the [tentative] assessment against the endorsement criteria (paragraphs 3.143 – 3.157)?
Yes No

If not, please provide an explanation.

No comment.

  1. Do you agree with our overall [tentative] conclusion that IFRS 17 meets the criteria of understandability, relevance, reliability and comparability required of the financial information needed for making economic decisions and assessing the stewardship of management (paragraphs 3.158 – 3.161)?
Yes ☑ No

If not, please provide an explanation.

"Understandability” may not be intuitive for everything on Day 1 but the standard should provide a framework for a more common languance of value and risk over time.

Section 4 – UK long term public good assessment

  1. Improvements introduced by IFRS 17. are there other aspects of the changes expected under IFRS 17 that need to be featured (paragraphs 4.30 – 4.59)?
Yes No

If yes, please provide an explanation.

No comment

  1. Costs and benefits: do you have any comments on the [tentative] assessment of the key costs and benefits for each of the main stakeholder groups (paragraphs 4.67 – 4.135), including the approach taken to sunk costs (paragraphs 4.91 – 4.99)?

The overall cost of implementation is easier to quantify than the benefits, which pertain more to cost of equity resulting from forward-looking elements for which accounting is just a lens. The overall cost of implementation is small in the context of the balance sheet of the insurance industry and could have / should have been amortised over the long glidepath into endorsement / implenetation. The dis-synergy with Solvency 2 seems a function of stakeholder intervention in each process.

  1. Effect on the economy. does the [tentative] assessment fairly capture the principal expected impacts of the standard on the insurance industry and wider UK economy (paragraphs 4.136 – 4.275)?
Yes No

If not, please provide an explanation.

No comment

  1. Do you agree with our [tentative] overall conclusion that IFRS 17 is likely to be conducive to the long term public good in the United Kingdom (paragraphs 4.276 – 4.299)?
Yes ☑ No

If not, please provide an explanation.

Click or tap here to enter text.

Section 5 - True and fair view assessment

  1. Do you have any comments on our approach to the assessment against the true and fair view endorsement criterion?

No comment

  1. Do you agree with our [tentative] conclusion that IFRS 17 is not contrary to the true and fair principle set out in Regulation 7(1)(a) of SI 2019/685?
Yes ☑ No

If not, please provide an explanation.

Click or tap here to enter text.

Appendix B - Assessment of remaining significant issues

  1. Do you agree with the [tentative] assessment against the endorsement criteria for each of the remaining significant issues presented in Appendix B?
Yes No

If not, please provide an explanation, identifying clearly to which significant technical issue your comments relate.

No comment

  1. Do you have any comments on the application of IFRS 17 to Reinsurance-to-close transactions (see comments towards the end of the assessment in respect of Contracts acquired in their settlement period – page 142)?

No comment

Overall [Draft] ECA

  1. Do you have any additional feedback that the UKEB should consider?

No comment

[Tentative] Adoption decision

  1. Do you agree with our [tentative] overall conclusion that IFRS 17 meets the statutory endorsement criteria and should be adopted for use in the UK (see Section 6)?
Yes ☑ No

If not, please provide an explanation.

My feedback is based on longer-term background discussions and understanding of the IFRS17 project. I have considered the relevant highlighted paragraphs of the UKEB's draft endorsement assessment where I have made comments but should not be understood to have proofed all 160 pages in detail.

Thank you for completing this Invitation to Comment

Footnotes

  1. In July 2021 the IASB published Exposure Draft ED/2021/8 Initial application of IFRS 17 and IFRS 9 – Comparative Information (Proposed Amendment to IFRS 17). The IASB plans to complete any resulting amendment by the end of 2021. ↩

  2. The International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019: https://www.legislation.gov.uk/uksi/2019/685/made ↩

  3. These policies can be accessed from the footer in the UKEB website here: https://www.endorsement-board.uk ↩