IFRS 17

IFRS 17 is a forthcoming International Financial Reporting Standard that is anticipated to be released in the first half 2017. It is intended to replace IFRS 4 on accounting for insurance contracts and has an expected effective date of 1 January 2021.

Under the IFRS 17 model, insurance contract liabilities will be calculated as the present value of future insurance cash flows with a provision for risk. The discount rate will reflect current interest rates. If the present value of future cash flows would produce a gain at the time a contract is issued the model would also require a "contractual service margin" to offset the day 1 gain. The contractual service margin would amortize over the life of the contract. There would also be a new income statement presentation for insurance contracts, including a revised definition of revenue, and additional disclosure requireemnts.

IFRS 17 will also have accommodations for certain specific types of contracts. Shoet-duration insurance contracts will be permitted to use a simplified unearned premium liability model until a claim is incurred. And for some contracts in which the cash flows are linked to underlying items, the liability value will reflect that linkage.

In South Korea there is concern that the use of current interest rates, rather than book yields, to discount the insurance liabilities will cause some insurers to showsignificantly higher insurance liabilities. In other countries there are concerns about volatility of accounting results.