WG IFRS 30/08/2010, 5-7PM

KBC, Havenlaan 2, Brussels

Attending: An Claus, Florence Motte, Liesbet De Deckere, Christophe Gillain, Kurt Lambrechts, Philippe Demol, Jan De Roeck, Guy Nyssen

Excused: Audrey Meganck, Ann Duchene, Katrien Mertens, Sophie Misselyn, Frank Dhondt, Luc Kesters, Gérard Vandenbosch, Pieter-Jan Vanheule

Minutes

Profile of participants

Name / Company / Domain / IFRS experience / S2 experience / Focus
Ann Duchene / AON / S2 - IFRS / Phase 2 / X
Katrien Mertens / AON / S2 – IFRS / Phase 2 / X
Audrey Meganck / Mensura / Life, non life, risk / - / X
Pieter-Jan Vanheule / DKV / Risk & actuarial / - / X
Liesbet De Deckere / Dexia ins Be / Life & Risk / - / X
Christophe Gillain / AXA / Life individual / Phase 1 / X
Guy Nyssen / Vivium / Non-life / X
Erik van hove / KBC / Risk, S2 - IFRS / Phase 1 / X
Philippe Demol / AXA / Life Group / Phase 1 / X
Kurt Lambrechts / KBC / Life / Phase 2 / X
Frank Dhondt / Dexia ins Be
Florence Motte / Deltalloydlife / Life
Sophie Misselyn / ING
Luc Kesters / Vereycken
Jan De Roeck / TowersWatson / Life / Phase 1 / X
Gérard Vandenbosch / PWC

1.Approval of minutes of last meeting

Minutes are approved.

2.Goals of the working group

Before analyzing the Exposure Draft, the goal of the working group has been discussed and compared with the different IFRS working groups of Assuralia. Are we going to do the same job or are we complementary?

The idea of having a common “position” on the Exposure Draft has also been discussed.

Apparently, the working group of Assuralia would be more focused on accounting aspects while the IABE working group will be more focused on actuarial aspects. No collaboration with Assuralia is foreseen but this point is still open.

The allocation of the tasks to the participants as presented in the minutes of the meeting of 07/07/2010 has not been done yet.

3.Analysis of the Exposure Draft

During the meeting, the following paragraphs of the exposure draft have been discussed by taking into account Life and Non-Life specifications.

It is important to notice that all comments/reflections come from our interpretation of this exposure draft.

Objective (§§ 1)

No comment.

Scope (§§ 2 to 7)

Practical consequence of the interpretation of the paragraphs:

§2 (a)

2 An entity shall apply this [draft] IFRS to:

(a) insurance contracts (including reinsurance contracts) that it issues and reinsurance contracts that it holds.

Accepted reinsurance must be considered as insurance contract.

§4 (b)

4 An entity shall not apply this [draft] IFRS to:

(b) employers’ assets and liabilities under employee benefit plans (see IAS 19 Employee Benefits and IFRS 2 Share-based Payment) and retirement benefit obligations reported by defined benefit retirement plans (see IAS 26 Accounting and Reporting by Retirement Benefit Plans).

It seems that Employee Benefit plans do not belong to IFRS 4 because they are not considered as insurance contracts but as “insurance operations”.

§4 (g)

(g) direct insurance contracts that the entity holds (ie direct insurance contracts in which the entity is the policyholder). However, a cedant shall apply this [draft] IFRS to reinsurance contracts that it holds.

Other concrete examples of situations where we could not apply IFRS: fire insurance contracts of its own building, complementary insurance cover of a worker’s compensation contracts…

Question

How to deal with insurance captives?

Unbundling (§§ 8 to 12)

Comments from our interpretation:

  • It essentially concerns Life contracts that contain profit sharing clause (universal life) AND that could also contain a death cover. In this case, if the sum-at-risk is a percentage of the reserve then we could assume that this cover is “closely related” (thus no unbundling). If the insured sum is a fixed amount larger than the reserve then we should unbundle.
  • Contracts with ACRI (Assurance Complementaire Risque Invalidité) and ACRA (Assurance Complementaire Risque Accident) must also be unbundled.

Questions

  • What is the definition of “closely related”? This term appears in §8.
  • How to deal with paid services?

Example: In EB, an insurance company could make the accounting work relative to EB contract for one of its client. This part must belong to IAS 18? Do we need two separate contracts? But there is one commercial substance? (§8 (c))

  • How to deal with free services? Example: Preventive actions in Worker’s Compensation which is only a cost for the company. Same problem with support that reinsurers propose to evaluate special risks.

Recognition (§§ 13 to 15)

From an economic point of view, once an offer is done, then the insurer is under risk (even if the client has not signed or paid anything).

If we want to take into account these contracts in IFRS closure (on quarterly basis), it means that we should have information about the number of offers that are quarterly done and the expected percentage that will be accepted. This information is probably not available in most IT systems.

Questions

  • How to treat in the closure (ex end of the year) an offer done the 20th December and that will begin the 20th January?

Is it material? What about the residual margin? (no premium has been paid yet) Impact on Risk Adjustment?

  • How to interpret §15? Equalization reserves are excluded? Which kind of reserves are permitted?

§15 An insurer shall not recognise as a liability or an asset any amounts relating to possible claims under future insurance contracts (such as the amounts described in some jurisdictions as catastrophe provisions or equalisation provisions). This [draft] IFRS does not prohibit an entity from presenting such amounts by appropriating retained earnings to reserves within equity. IAS 1 Presentation of Financial Statements requires an entity to describe the nature and purpose of each reserve within equity.

Derecognition (§§ 67 to 68)

We wonder if the contrary of §67 corresponds to the definition of “Recognition”.

How to deal with group contract that can be kept on individual basis once in pension?

General comments

The definition of an insurance contract does not contain any reference to the payment of a premium, or to a physical “paper” contract.

  1. Various comments:

-also outside IASB papers available with a roundup of the current status: to be gathered and to be distributed among wg members

-web page wg only to be accessible for IABE members

-The form to get CPD points has not been filled.

Next meetings:

Hierbij een overzicht van de geplande meetings bij KBC, Havenlaan 2, Brussel:

GebouwRef.nr.DatumBeginEindeZaalReden

BRUHAV2366839330/08/201017:00:0019:00:00George MinnezaalIABE werkgroep IFRS

BRUHAV2366841313/09/201017:00:0019:00:00George MinnezaalIABE werkgroep IFRS

BRUHAV2366841427/09/201017:00:0019:00:00George MinnezaalIABE werkgroep IFRS

BRUHAV2366841504/10/201017:00:0019:00:00George MinnezaalIABE werkgroep IFRS

BRUHAV2366841618/10/201017:00:0019:00:00George MinnezaalIABE werkgroep IFRS

Place:

KBC, Havenlaan 2, Brussels, George Minne Zaal (up the escalators, then on your left or right)

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Public transport: bus stop “Sainctelette”. Lots of busses “DeLijn” at Brussels-North station, going west: Anderlecht, Dilbeek, Grimbergen, Aalst, Puurs,….