Set forth below you will find our comments to the topics included in the ED.

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1 October 25, 2013 International Accounting Standards Board 30 Cannon Street, London EC4M 6XH United Kingdom Dear Board Members: Consejo Mexicano de Normas de Información Financiera (CINIF), the accounting standard setting body in Mexico, welcomes the opportunity to submit its comments on the Exposure Draft ED/2013/7 on Insurance Contracts (the ED) issued for exposure in June For the purpose of analyzing the ED, a Mexican Working Group (MWG) including the Mexican Association of Insurance Institutions (Asociación Mexicana de Instituciones de Seguros AMIS), insurance experts from the Mexican Institute of Public Accountants (Instituto Mexicano de Contadores Públicos IMCP), Colegio Nacional de Actuarios (CONAC), and CINIF was created some months ago. Set forth below you will find our comments to the topics included in the ED. General Mexican insurance and bonding institutions are subject to the criteria established by the Mexican regulator (CNSF), which are on the path of convergence with Solvency II; it is important to point out that, at the same time, such criteria issued by the CNSF seek to converge, as much as possible, with international financial reporting standards, to be able to consolidate the information of insurance institutions with that of the financial groups to which they belong, as applicable; to that end, the ED of the IASB has special significance in Mexico. The MWG agrees with the approach the IASB has elected in the ED and is interested in the consistency of the proposed standard with the regulatory framework of Solvency II, to avoid unnecessary differences between the two frameworks, independent of the different approaches between the preparation of financial statements for general user purposes and for regulatory purposes. The MWG appreciates the efforts the IASB has made to: a) eliminate the accounting mismatch that can result from the application of different measurement models for financial assets and insurance liabilities, 1

2 b) reduce the short-term volatility in the profit or loss of an insurance institution, c) revise the proposals related to the contractual service margin adjustment, and d) allow for retrospective application of the future standard. Question 1 Adjusting the contractual service margin (paragraphs 30 31, B68, BC13 BC50 and IE9 IE11) Do you agree that financial statements would provide relevant information that faithfully represents the entity s financial position and performance if differences between the current and previous estimates of the present value of future cash flows if: (a) differences between the current and previous estimates of the present value of future cash flows related to future coverage and other future services are added to, or deducted from, the contractual service margin, subject to the condition that the contractual service margin should not be negative; and (b) differences between the current and previous estimates of the present value of future cash flows that do not relate to future coverage and other future services are recognized immediately in profit or loss? a) We agree, as long as changes in the risk margin (accrual differences) can also be added to, or deducted from, the contractual service margin. In this sense, we agree with (a) as long as consistency with the entity s valuation model is maintained, without the margin becoming negative, and considering a normal passage of time (accrual of the best estimate liability and the risk margin). b) We agree with the understanding that this refers to liability valuation differences over time, unrelated to future services, that originate from lapsed risk and services already rendered. We recommend looking over the decision to always include the unwinding of the interest rate in effect at the time of issuance of the policies in profit or loss, possibly replacing it with the interest rate in effect at the time of the last valuation. This would significantly reduce the differences with respect to the regulatory framework in Mexico. In summary, the position of the IASB seeks to maintain congruency with the business model of each entity; nevertheless, we believe that to ensure clarity, additional implementation guidance is needed. 2

3 Question 2 Contracts that require the entity to hold underlying items and specify a link to returns on those underlying items (paragraphs 33 34, 66, B83 B87, BC42 BC71 and IE23 IE25) If a contract requires an entity to hold underlying items and specifies a link between the payments to the policyholder and the returns on those underlying items, do you agree that financial statements would provide relevant information that faithfully represents the entity s financial position and performance if the entity: (a) measures the fulfilment cash flows that are expected to vary directly with returns on underlying items by reference to the carrying amount of the underlying items? (b) measures the fulfilment cash flows that are not expected to vary directly with returns on underlying items, for example, fixed payments specified by the contract, options embedded in the insurance contract that are not separated and guarantees of minimum payments that are embedded in the contract and that are not separated, in accordance with the other requirements of the [draft] Standard (ie using the expected value of the full range of possible outcomes to measure insurance contracts and taking into account risk and the time value of money)? (c) recognises changes in the fulfilment cash flows as follows: (i) changes in the fulfilment cash flows that are expected to vary directly with returns on the underlying items would be recognised in profit or loss or other comprehensive income on the same basis as the recognition of changes in the value of those underlying items; (ii) changes in the fulfilment cash flows that are expected to vary indirectly with the returns on the underlying items would be recognised in profit or loss; and (iii) changes in the fulfilment cash flows that are not expected to vary with the returns on the underlying items, including those that are expected to vary with other factors (for example, with mortality rates) and those that are fixed (for example, fixed death benefits), would be recognised in profit or loss and in other comprehensive income in accordance with the general requirements of the [draft] Standard? a) We agree with the proposal. b) See our response to c).iii). c).i) We agree with the proposal. c).ii) We agree with the proposal. c).iii) y b), taking into account the relationship that exists between both questions. We do not agree with applying fulfilment cash flows; in this case, we believe that all changes should be reported in profit or loss. We see no benefit to separating it. The MWG believes that the classification of particular changes in fulfilment cash flows is very detailed and we see no added value in the understandability of financial information. In fact, we believe this classification does not enhance comparability among institutions that offer similar products whose contractual characteristics may place them in different liability measurement categories and, on the contrary, we believe that this would create operating stress for the separate quantification of these elements. The proposal is that the standard not recognize the different sources of variation and that the measurement be made as an addition. 3

4 Question 3 Presentation of insurance contract revenue and expenses (paragraphs 56 59, B88 B91, BC73 BC116 and IE12 IE18) Do you agree that financial statements would provide relevant information that faithfully represents the entity s financial performance if, for all insurance contracts, an entity presents, in profit or loss, insurance contract revenue and expenses, rather than information about the changes in the components of the insurance contracts? We agree with the proposal, since it provides relevant information and helps measure market size and participation in the Gross National Product (GNP). Question 4 Interest expense in profit or loss (paragraphs and BC117 BC159) Do you agree that financial statements would provide relevant information that faithfully represents the entity s financial performance if an entity is required to segregate the effects of the underwriting performance from the effects of the changes in the discount rates by: (a) recognising, in profit or loss, the interest expense determined using the discount rates that applied at the date that the contract was initially recognised. For cash flows that are expected to vary directly with returns on underlying items, the entity shall update those discount rates when the entity expects any changes in those returns to affect the amount of those cash flows; and (b) recognising, in other comprehensive income, the difference between: (i) the carrying amount of the insurance contract measured using the discount rates that applied at the reporting date; and (ii) the carrying amount of the insurance contract measured using the discount rates that applied at the date that the contract was initially recognised. For cash flows that are expected to vary directly with returns on underlying items, the entity shall update those discount rates when the entity expects any changes in those returns to affect the amount of those cash flows? In this respect, we suggest that assets measured at fair value through OCI linked to insurance liabilities including particular debt instruments that are not adjusted to the measurement characteristics of contractual cash flows, equity instruments and properties be presented in profit or loss along with the return on assets, impairment losses, and the recycling of gains and losses previously recognized in OCI to profit or loss upon realization. 4

5 Question 5 Effective date and transition (paragraphs C1 C13, BC160 BC191 and IE26 IE29) Do you agree that the proposed approach to transition appropriately balances comparability with verifiability? With respect to the transition proposals, we agree with the proposed modified retrospective approach since we understand that in many cases entities may make a reasonable estimation of the remaining contractual service margin based on internal historical information for their different portfolios. However, if the IASB were to require different effective dates for IFRS 9, Financial Instruments, and the new insurance contract standard, we recommend that for all insurance institutions: a) The effective date of IFRS 9 be deferred until the effective date of the new insurance contract standard. In our opinion, early application of both IFRS 9 and the new insurance contract standard should be allowed, in order to facilitate the application of standards related to IFRS 9 and the new insurance contract standard as soon as possible, and b) These standards be approved to reconsider hedging designations, the use of the fair value option, and the classifications of investment portfolios recognized under IFRS 9, upon initial application of the new insurance contract standard. We agree with a three-year implementation period from the date the new insurance contract standard is issued. Question 6 The likely effects of a Standard for insurance contracts Considering the proposed Standard as a whole, do you think that the costs of complying with the proposed requirements are justified by the benefits that the information will provide? How are those costs and benefits affected by the proposals in Questions 1 5? How do the costs and benefits compare with any alternative approach that you propose and with the proposals in the 2010 Exposure Draft? Please describe the likely effect of the proposed Standard as a whole on: (a) the transparency in the financial statements of the effects of insurance contracts and the comparability between financial statements of different entities that issue insurance contracts; and (b) the compliance costs for preparers and the costs for users of financial statements to understand the information produced, both on initial application and on an ongoing basis. We believe that the investment will be worthwhile, as long as our previous comments are considered, due to the benefits that the proposals bring for purposes of improved analysis and comprehension of the financial statements. 5

6 Question 7 Clarity of drafting Do you agree that the proposals are drafted clearly and reflect the decisions made by the IASB? If not, please describe any proposal that is not clear. How would you clarify it? Altough immediate implementation of the proposals in our country is not foreseen, in our opinion the draft is clear in this regard. We believe it is important to consider the fact that in Mexico, the regulator determines with which international standards our regulation will converge, as a result of which the adoption of this and other IFRS will depend on such regulator Should you require additional information on our comments listed above, please contact Luis A. Cortes at (52) ext. 114 or me at (52) ext. 103 or by at lcortes@cinif.org.mx or fperezcervantes@cinif.org.mx, respectively. Sincerely, C.P.C. Felipe Perez Cervantes President of the Mexican Financial Reporting Standards Board Consejo Mexicano de Normas de Información Financiera (CINIF) Cc: Jan Engström Amaro Gomes 6