The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today published its response to the European Financial Reporting Advisory Group’s (EFRAG) consultation on its draft advice on the endorsement into European law of the new international accounting standards for insurance contracts (IFRS 17). ESMA supports the endorsement of IFRS 17 which will provide a consistent system of requirements to account for insurance and reinsurance contracts.
ESMA’s response to the consultation indicates that a key role in promoting greater transparency and consistency in accounting for insurance contracts in accordance with IFRS 17 is played by the principles for the aggregation of contracts that form an integral part of the new measurement model. ESMA recommends that EFRAG consider these aspects when finalising its advice, including the requirement to group insurance contracts that are issued no more than one-year apart (annual cohort requirement).
In addition, ESMA notes that IFRS 17 is a very detailed standard which reflects the complexity of the underlying insurance and reinsurance business which results in the extensive application of professional judgement. ESMA expects that the accompanying disclosures will have an essential role in providing the necessary complementary information on how management has exercised this judgement. On balance, ESMA considers that IFRS 17 will contribute to the European public good and have a positive impact on investor protection and financial stability.
The response builds on previous ESMA public positions in relation to IFRS 17, particularly its September 2019 response to EFRAG’s consultation on its draft comment letter on the International Accounting Standards Board’s Exposure Draft Amendments to IFRS 17.