The amended accounting requirements for financial instruments in the International Financial Reporting Standard (IFRS) 9 contain a recognition of the need to reduce mismatches between how insurers manage their business and how they report their financial performance.
Recently issued by the International Accounting Standards Board (IASB), these amendments will enable insurers to report on the short-term performance of debt security assets in the fair value through other comprehensive income (FVOCI) measurement category and the use of fair value accounting, if doing so avoids an accounting mismatch. However, the insurance industry is not convinced with the prohibition of recycling on equities, when measured at FVOCI.
Furthermore, an important link is the current IASB development of the insurance contracts standard, otherwise known as IFRS 4 Phase II. The consistent interaction with accounting requirements for insurance contracts is crucial because insurers often have complex long-term asset/liability management strategies, and they may hold other assets such as derivatives, equities and investment property to back their insurance liabilities. In these cases, management/reporting mismatches would still occur. The IFRS 9 application for insurers can only be assessed, therefore, on a holistic basis once the insurance contracts project is finalized.
As such, Insurance Europe believes that appropriate and consistent consideration is needed on the inherent link between insurance liabilities and financial assets in order to reflect the business model and performance of insurers. Therefore, it is essential that insurers should be able to implement the two standards at the same time in due course.