EFRAG’s Final Comment letter to the IASB ED/2015/11 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

​EFRAG has submitted its comment letter to the IASB on the IASB’s ED/2015/11
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts.

​On 9 December 2015, the IASB issued the Exposure Draft ED/2015/11 Applying
IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts (‘the
ED’).

On 24 December 2015, EFRAG published its Draft comment letter on the ED.
EFRAG has considered the comments received in response to it and has submitted
its comment letter to the IASB.

EFRAG welcomes the IASB proposals. EFRAG assesses that the temporary
exemption from applying IFRS 9 is addressing all the concerns relating to the
misalignment of IFRS 9 and the new insurance contracts Standard, in contrast to
the overlay approach which is addressing only the accounting mismatches.
However, EFRAG has been made aware that the overlay approach is a suitable
approach for some banks which carry insurance activities. As a result, EFRAG
supports both approaches as being complementary.

To maintain as level a playing field as possible in the insurance sector,
EFRAG believes that the temporary exemption from applying IFRS 9 should be
available to as many entities as possible that are significantly impacted by the
interaction between IFRS 9 and IFRS 4. Further, EFRAG considers that the
temporary exemption from applying IFRS 9 should not be extended to banking
activities that are material at the reporting entity level. Therefore, EFRAG
assesses the IASB approach as being both too restrictive and too broad (a
limited number of insurers would qualify for the temporary exemption from
applying IFRS 9 whilst the IASB’s proposed predominant activity criterion
applied at reporting entity level would exempt some material banking activities
from applying IFRS 9). Therefore, EFRAG proposes that:

  • the issuance of a significant amount of insurance contracts within the scope
    of IFRS 4 be a necessary condition to apply the temporary exemption from
    applying IFRS 9;
  • entities should be allowed to apply either a widened predominant activity
    criterion or a regulated entity criterion to identify whether the temporary
    exemption from applying IFRS 9 can be applied; and
  • the temporary exemption from applying IFRS 9 can be applied either at or
    below reporting entity level.

Finally, EFRAG agrees with the expiry date set for the temporary exemption
from applying IFRS 9 because the new insurance contracts Standard should be
finalised as soon as possible and, in any event, no later than this date. EFRAG
disagrees with identifying the overlay approach as a backstop in case of a
possible delay in the finalisation of the new insurance contracts Standard.

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