Response 19 - BDO LLP

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Publication date
04 February 2022
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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.

The delegation of powers to adopt international accounting standards for use in the UK was made to the UKEB in May 20213.

The information collected from this Invitation to Comment is intended to help with the endorsement assessment. This will form part of the work necessary to assess IFRS 17 for potential UK endorsement and adoption.

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)4.

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)?

We agree with the UKEB's holistic approach to assessing the standard as a whole, whilst identifying and reporting in more detail in relation to priority and other significant issues.

2. 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.

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Section 2 - Description of IFRS 17

3. 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?

No comments

Section 3 - Technical accounting criteria assessment

4. 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.

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5. 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.

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6. 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.

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7. 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.

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8. 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.

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9. 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.

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Section 4 – UK long term public good assessment

10. 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.

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11. 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)?

No comments

12. 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 as beyond the scope of our expertise

13. 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.

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Section 5 - True and fair view assessment

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

No comments

15. 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.

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Appendix B – Assessment of remaining significant issues

16. 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.

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17. 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

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

We continue to believe that the smooth functioning of UK capital makets is best served by the adoption of a single set of international accounting standards. We strongly support the tentative conclusion to endorse the standard. Whilst we understand why the UKEB has sought views on certain requirements of IFRS 17, given the level of discussion there has been on these matters in the UK, the significant improvement in insurance accounting that wil be achieved by moving to IFRS 17 and the benefits of international consistency justify that conclusion.

[Tentative] Adoption decision

19. 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.

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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. The International Accounting Standards (Delegation of Functions) (EU Exit) Regulations 2021: https://www.legislation.gov.uk/uksi/2021/609/contents/made ↩

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