– The Reinsurance Solutions business of Aon (NYSE: AON), a leading global professional services firm providing a broad range of risk, retirement and health solutions, has submitted a response to the consultation draft for Amendments to IFRS 17 published in June 2019 by the International Accounting Standards Board (IASB).
IFRS 17 is bringing a fundamental change in the accounting of re/insurance contracts for over 1,000 insurance entities around the world, which include Aon’s clients.
The IASB received over 100 comment letters from accounting and actuarial associations, insurance and reinsurance companies, rating agencies, accounting firms and other key industry groups. Based upon its reinsurance expertise, Aon focused on three of the ten question that were subject to consultation. These include a request for further modifications and clarifications, due to certain inadequacies, for:
- Accounting for acquisition costs: Aon agreed that acquisition costs relating to renewals of the existing business should be excluded from the valuation of the existing business. Without this change contracts could be determined as loss-making while not reflecting the economics underlying the transactions.
- Accounting for reinsurance contracts held: The firm asked the IASB to reconsider the definition of “proportionate” reinsurance to widen its scope such that it can include proportionate covers where the percentage of business ceded is not fixed across policies. Aon have additionally asked for similar relief to be granted for holders of non-proportionate covers. Lastly, Aon have sought to clarify guidance for calculating that relief and the guidance for accounting for retrospective reinsurance covers.
- Risk mitigation options for life reinsurance: Aon agreed with the extension of risk mitigation option to include reinsurance contracts held for qualifying participating business but raised the need for allowing reinsurance contracts to be measured through the Variable Fee Approach. The firm have illustrated this need based on findings from a study Aon conducted globally amongst our life clients.
Aon’s response can be found here
Milena Lacheta, Global IFRS 17 Lead at Aon’s Reinsurance Solutions business commented: “Companies have been facing significant operational and technical challenges in implementation, whose costs double those of Solvency II projects in Europe. As implementation progresses, accounting of reinsurance contracts held emerges as one of the major challenges, and so reinsurance is a key issue.”
The IASB will now evaluate the feedback received and then redraft and reissue the standard accordingly.
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