UK – FRC Assesses Reporting Against New Insurance Standard.
The Financial Reporting Council has published a thematic review of company disclosures against IFRS 17 Insurance Contracts after the first full year of reporting. It is a follow up to the FRC’s report into the disclosures made in 2023 interim accounts.
New insurance standard
IFRS 17 changes the way that insurance companies recognise and measure the value of insurance contracts on their IFRS balance sheet. Perhaps most significantly, IFRS 17 requires insurers to recognise profits or losses as they deliver their insurance services, rather than when they receive premiums or incur expenses.
Thematic review
The FRC’s report paints a relatively positive picture of companies’ compliance with IFRS 17. The FRC says that the quality of IFRS 17 disclosures which it considered was good and that there was a ‘high level of compliance’. While some further areas for improvement were identified in the annual reports and accounts in its sample, the FRC said that many of the issues identified related to areas it commonly raises with companies as part of its routine reviews, such as judgements and estimates, and alternative performance measures.
In the early periods of implementation of a new standard the FRC is particularly careful to take a proportionate approach, so that companies have the opportunity to innovate and consider fully how best to disclose the required information. It encourages companies to consider the examples of good disclosure in the thematic review and to incorporate them in their future reporting. In particular, companies should:
- provide disclosures that meet the disclosure objective of IFRS 17 and enable users to understand how insurance contracts are measured and presented in the financial statements, while avoiding boilerplate language;
- ensure that accounting policies are sufficiently granular and provide clear, consistent explanations of accounting policy choices, key judgements and methodologies, particularly where IFRS 17 is not prescriptive;
- where sources of estimation uncertainty exist, provide information about the underlying methodology and assumptions made to determine the specific amount at risk of material adjustment and provide meaningful sensitivities and/or ranges of reasonably possible outcomes;
- provide appropriately disaggregated qualitative and quantitative information to allow users to understand the financial effects of material portfolios of insurance (and reinsurance) contracts;
- meet the FRC’s expectations set out in previous thematic reviews on the use of APMs, including commonly used measures such as premium metrics, and claims and expense ratios.
The thematic review on insurance contracts following the first year of reporting can be found here. The FRC’s earlier thematic review on interim disclosures can be found here.
For further information, please contact:
Judy Pink, Linklaters
judy.pink@linklaters.com
