International Financial Reporting Standard 4

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The International Financial Reporting Standard 4 Insurance Contracts (IFRS 4) is an international accounting standard ( IFRS ) of the International Accounting Standards Board (IASB), which regulates the accounting of insurance contracts . In addition, financial instruments with a discretionary participation feature are within the scope of IFRS 4.

Before IFRS 4 was adopted, there were no regulations in the IFRS for insurance contracts or profit sharing. As part of the insurance project of the IASC since 1997 and subsequently by the IASB, no final insurance standard could be developed until the introduction of IFRS in the European Union and a number of other countries in 2005. In order to avoid a loophole for insurance contracts in the entire work of the IFRS, the insurance project was divided into two phases in 2002. In the first phase, a transitional standard, the current IFRS 4, was developed. In the second phase, since work on this project started again in 2005, the final standard is being developed. The standard was adopted as IFRS 17 in May 2017 after a discussion paper was published in 2007 and a draft (ED / 2010/8) in June 2010. The current standard no longer proposes a valuation at current selling prices for insurance portfolios - as was still in the discussion paper - but a valuation based on the present value of cash flows that are necessary to fulfill the contract to be valued (present value of the fulfillment cash flows ).

IFRS 4 defines insurance contract as "a contract under which one party (the insurer ) accepts significant insurance risk from another party (the policyholder) by agreeing to the policy holder to pay compensation if a specified uncertain future event ( the insured event) adversely affects the policyholder. ”This definition is of far-reaching importance, as so far neither German nor European law knew a formal definition of an insurance contract. The difficulty of defining an insurance contract is made clear by the fact that the main accounting-determining part of IFRS 4 itself only has 45 paragraphs, while the appendix explaining the definition of an insurance contract requires 30 paragraphs for this alone.

IFRS 4 also defines the term “discretionary participation features”. Even financial instruments with discretionary participation features, in Germany e.g. B. some pure savings contracts offered by life insurers are within the scope of IFRS 4.

As a transitional standard, the main purpose of IFRS 4 is to create orderly channels for the accounting previously used by insurers so that they can prepare thoroughly for the final standard to be applied from around 2010 without having to make significant changes. The administration, but especially the valuation for accounting purposes of insurance contracts, is one of the most difficult accounting tasks of all because of their complexity and the concentrated uncertainty they contain. For this reason, the IASB stipulates that the previous accounting methods are to be continued as far as possible.

In order to prevent methods that may have been inappropriate under IFRS up to now, the following restrictions have been determined:

  • Certain derivatives that are embedded in insurance contracts must be separated from the rest of the contract and treated in accordance with IAS 39 .
  • If rights and obligations from deposit components (savings portions) are not taken into account, the deposit component must be unbundled, in other cases the deposit component may be unbundled as an option.
  • The previous methods must ensure that at least the best estimated value of the future net obligation is always recognized as a provision . Otherwise, a special, even more careful, adequacy test needs to be included in the methods.

In order to enable insurers to transition to the final solution as early as possible, IFRS 4 allows the previous methods to be changed under certain conditions. This possibility is much more extensive than anywhere else in IFRS. One of the principles of IFRS is not to allow options as much as possible.

The corresponding rules also apply to contracts with discretionary participation features. The profit participation procedures customary in Germany, Austria and Switzerland meet the requirements for discretionary profit participation, as determined in IFRS 4.

The methods used by insurers around the world and therefore to be continued in accordance with IFRS 4 are extremely different. This means that, despite the joint application of IFRS, insurers still cannot compare the balance sheet or the income statement . According to the will of the IASB, this essential deficiency is to be compensated for by the comprehensive provisions on the information that must be provided in the notes to the financial report (annual or consolidated financial statements). IFRS 4 sets out two reporting principles for this, which are explained in detail in the non-binding `` Implementation Guidance ''.

As it is not expected that the IFRIC will comment on insurance-specific issues before the final standard is adopted, the International Actuarial Association, with the support of the IASB, has adopted several International Actuarial Standards of Practice that comment on various aspects of IFRS 4. This is intended to achieve the most uniform application and interpretation of IFRS 4 worldwide. Due to the technical complexity of the issues dealt with in IFRS 4, actuarial expertise is required in order to present the provisions of IFRS 4 in a technically correct manner for the detailed questions. Actuaries are therefore closely involved in all accounting issues from insurers.

literature

  • Markus Kreeb: The insurance group accounts according to international accounting rules: IFRS 4 Phase II , Josef Eul Verlag 2010, ISBN 978-3899369250

Web links

Individual evidence

  1. ↑ Project page of IFRS 4 ( Memento of the original from January 14, 2012 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.  @1@ 2Template: Webachiv / IABot / www.ifrs.org
  2. ↑ Rolf Bächler - Accounting for Insurance Contracts, IFRS 4: ED / 2010/8 Insurance Contracts (PDF; 62 kB)