Senaste nytt om den nya standarden för redovisning av försäkringskontrakt

Transcription

1 Senaste nytt om den nya standarden för redovisning av försäkringskontrakt IFRS Symposium 2014 Stockholm, 24 September 2014 UTKAST

2 Many parts of an insurer s IFRS balance sheet are currently under revision ACCOUNTING STANDARDS BALANCE SHEET ACCOUNTING STANDARDS Liabilities IAS 38 Intangible IFRS 4 Insurance Contracts IAS 18 Revenue Recognition Intangible assets DAC Equity Current standard New standard Insurance contracts IAS 40 Investment Property Property IFRS 4 Insurance Contracts IAS 39 FI: Recognition and Measurement Technical provisions IAS 39 FI: Recognition and Measurement IAS 18 Revenue Recognition IAS 32 FI: Presentation Financial instruments (FI) Investment contracts IFRS 7 FI: Disclosures Debt IAS 39 FI: Recognition and Measurement IAS 12 Income Taxes IAS 39 FI: Recognition and Measurement Cash Other liabilities IAS 19 Employee Benefits IAS 37 Provisions, Contingent Liabilities and Contingent 2 Cavendi Management Consulting 2

3 Many parts of an insurer s IFRS balance sheet are currently under revision ACCOUNTING STANDARDS BALANCE SHEET ACCOUNTING STANDARDS Liabilities IAS 38 Intangible New insurance IFRS 4 Insurance contracts Contracts standard IFRS 15 Revenue IAS fr18 Contracts Revenue w Recognition Customers Intangible assets DAC Equity Current standard New standard Insurance contracts IAS 40 Investment Property Property New IFRS 4insurance Insurance contracts Contracts standard IAS 39 FI: Recognition IFRS 9 Financial and Measurement Instruments Technical provisions IAS IFRS 39 9 Financial FI: Recognition Instruments and Measurement IAS IFRS Revenue Recognition fr Contracts wcustomers IAS 32 FI: Presentation Financial instruments (FI) Investment contracts IFRS 7 FI: Disclosures Debt IAS IFRS 399 Financial FI: Recognition Instruments and Measurement IAS 12 Income Taxes IAS 39 FI: Recognition IFRS 9 Financial and Measurement Instruments Cash Other liabilities IAS 19 Employee Benefits IAS 37 Provisions, Contingent Liabilities and Contingent 3 Cavendi Management Consulting 3

4 Two views of performance Balance sheet Shareholder equity Contractual service margin View 1: Balance sheet Current value / economic picture Risk adjustment BEL Insurance contracts liability Profit and loss account Insurance contract revenue Liabilities View 2: Profit and loss account Incurred claims and expenses Operating result Long-term value generation Investment income Interest expense on insurance liability Investment result Profit or loss 4 Cavendi Management Consulting

5 Balance sheet Contractual service margin Contractual service margin Risk adjustment Probability weighted discounted expected present value of cash flows Current value / economic picture Market value (fair value) of financial assets (possible) Insurance liability calculated according to building block approach The estimates of cash flows ( probability weighted ) include all cash inflows and cash outflows within the contract boundary, including options and guarantees, that relate directly to the fulfilment of the portfolio of contracts, and be Explicit Unbiased Current Entity-specific The estimates of future cash flows shall be adjusted by the time value of money, using discount rates that reflect the characteristics of those cash flows The risk adjustment represents the compensation an entity requires for bearing the uncertainty about the amount and timing of the cash flows The contractual service margin (CSM) represents unearned profit and avoids (positive) up-front gains. Volatile without asset-liability matching 5 Cavendi Management Consulting

6 Statement of comprehensive income Statement of comprehensive income Insurance contract revenue Incurred claims and expenses Operating result Investment income Interest expense on insurance liability Investment result Profit or loss Effect of discount rate changes in insurance contracts liability (optional) Effect of measurement differences in assets classified as FV through OCI (optional) Other comprehensive income Long-term value generation Insurance contract revenue depicts the transfer of promised risk coverage and services arising from the insurance contract in an amount that reflects the consideration received in exchange for those services Consistent with the way revenue is presented for other contracts with customers Items of operating profit exclude effects from financial components Predominantly stable and predictable through No up-front profits as a result of CSM Reflecting certain asset related volatility in OCI (optional) Reflecting changes of future estimates of cash flows in CSM Comprehensive income 6

7 Reconciliation of balance sheet and statement of comprehensive income (for building block approach) Actual claims and expenses 1 2 Statement of comprehensive income Insurance contract revenue Release of contractual service margin Interest (locked in) Contractual service margin Financial assets Investment return for financial assets at FVPL Investment return (amortised cost) for financial assets at FVOCI Investment return difference (between market value and amortised cost) for assets at FVOCI Incurred claims and expenses Operating result Investment income Interest expense on insurance liability Investment result Profit or loss Effect of discount rate changes in insurance contracts liability (optional) Effect of measurement differences in assets classified as FV through OCI (opt.) Other comprehensive income Change in risk adjustment (including release) 1 Release of expected claims and expenses (changes related to past and current services) 2 Changes in future estimates of cash flows unrelated to future coverage and services Changes to future estimates of cash flows when there is no CSM left Interest expense using discount rates at initial recognition Difference between PV at discount rates at initial recognition and PV at current discount rates Risk adjustment Probability weighted discounted expected present value of cash flows Changes in future estimates of cash flows related to future coverage and services Comprehensive income 1 Excluding (non-separated) financial components 2 Directly attributable acquisition costs are allocated over the coverage in line with the transfer of services 7 Cavendi Management Consulting

8 How do you want to communicate your company s financial condition and performance? Future IFRS Solvency 2 MCEV P Current statutory Shareholder equity Free assets SCR Available capital Adjusted net worth MCEV DAC Shareholder equity VIF 4 5 (book value) Contractual service margin Risk adjustment BEL 1 2 Insurance contracts liability (market value) Risk margin BEL 3 Technical provision (market value) FC CRNHR BEL 2 (book value) FTA Liabilities Liabilities Liabilities Liabilities 1 Narrow cost assumptions 2 Often includes present value of future premiums + related claims and expenses through wide contract boundary 3 Narrow contract boundary 4 Includes PVIF and TVOG 5 Includes shareholder part of unrealised gains in policyholder assets BEL = Best estimate liability VIF = Value of in-force business FC = Frictional costs CRNHR = Cost of residual non-hedgeable risks DAC = Deferred acquisition cost asset FTA = Insurance technical provision Simplification assumptions for this picture No investment contracts No contracts under premium allocation approach

9 What are the remaining discussions? 1 Presentation of revenue Presentation format confirmed Revenue recognition as earned confirmed Exclusion of financial components confirmed 3 Unlocking of CSM Unlocking for changes in estimates confirmed Changes in estimates of Risk adjustment now included Previous losses are rebuilt Application to participating contracts yet unclear 5 Transition Will be re-considered in the light of a near-final model No major stumbling stones expected OK X X 2 OCI proposals Accounting policy choice included on a portfolio basis to present the effect of changes in discount rates in profit and loss or in OCI Some more guidance needed 4 Measurement par contracts Completely open Minor issues Seven further areas to be considered No major stumbling stones expected OK X X 9

10 Selected issues for Swedish insurers General Complex reconciliation between balance sheet and income statement Disclosure of implicit quantile of riskadjustment Traditional life (traditionell livförsäkring) Mutually operating companies: Inclusion of all expected future payments to policyholders (including bonus), to both current and future policyholders, will decrease substantially or even eliminate equity (egetkapital) IASB is aware of the issue but is reluctant to adopt special considerations for a particular company form (mutuals) Discussions will be continued at a Swedish level (for lagbegränsad IFRS only) Non-life (sakförsäkring) Some differences exist compared to current accounting principles, but requirements are usually similar to those under Solvency II (for example discounting of claims reserves if material, best estimate of claims reserves or inclusion of risk adjustment) Unit linked (fondförsäkring) Significant portion of both insurance and investment contracts, with no option to voluntarily separate components (unbundle) Potential restriction on inclusion of future premiums in cash flows might lead to onerous contracts Risk riders of savings contracts are treated as part of the host contract 10

11 How are Swedish listed companies affected? (consolidated group accounts; full IFRS-EU)? International European Union Sweden Company IASB Issues IFRSs European Commission Endorsement for use in Europe IAS Regulation Article 4 Insurance company AB (listed) Advice EFRAG Mother company AB (listed) Insurance company AB

12 How are other Swedish insurance companies affected (statutory accounting; lagbegränsad IFRS)? International European Union Sweden Company IASB Issues IFRSs European Commission Endorsement for use in Europe FFFS 2008:26: Apply endorsed IFRSs unless they are incompatible with Swedish law or regulations Insurance company Advice Riksdag ÅRFL EFRAG Delegation Finansinspektionen FFFS 2008:26 Delegation Rådet för Finansiell Rapportering RFR 2

13 Preparation for the IFRS implementation starts with building knowledge and performing an impact assessment Effective date approximately three years after Standard finalised ED 2013/7 Insurance Contracts Final IFRS Insurance Contracts Endorsement by European Union Potential local restrictions Mandatory date???? Today Opening balance Comparative yearly balance First quarterly report First annual report Comparative quarterly balance Conceptual knowledge Technical knowledge Impact assessment Plan implementation Implementation Perform dry runs Communication of results, strategic implications, embedding in business 13 Cavendi Management Consulting 13

14 Thank you! Alexander Dollhopf Stockholm, Sweden Cavendi Management Consulting