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IFRS, UK GAAP and Solvency II Barnett Waddingham Kim Durniat 15 November 2012
Agenda • Update on where we are with these
• What we expect to happen in 2013 and beyond
• Discussion on implications
UK GAAP
• The future of UK GAAP • New UK GAAP – 1 January 2015
• Mind the Gap published in January 2012 • Introduction of SII will render current UK GAAP
obsolete • At time of publishing IFRS was expected after SII
but now who knows? • Short term solution • Long term solution
• ED expected in 2013
IFRS - Insurance Contracts • ED in H1 2013
• Full text of standard
• Limited questions and do not intend to revisit other aspects after exposure
Core Proposal – Measurement of insurance contract liability
Residual margin
Risk adjustment
Time value of money
Cash flows
• Quantifies the unearned profit arising from the contract that the insurer expects to earn as it fulfils the contract
• Quantifies the difference between the certain and uncertain liability
• An adjustment that reflects the time value of money
• The amounts the insurer expects to collect from premiums and pay out as it acquires, services and settles the contract, estimated using up-to-date information
Total liability
Changes since July 2010 ED
• Presentation • Volume information and changes in discount rate
• Measurement • Unlocking the residual margin • Participating contracts
• Transition
IFRS - Timelines
• H1 2013 Publish targeted exposure draft
• Q4 2013 begin redeliberations
• H2 2014 publish IFRS Proposed effective date 1 January 2018?
• Early adoption permitted and restate comparatives
Where is Solvency II?
Some definitions: • “Omnibus II” – a piece of European legislation that
amends the Solvency II directive • The “Trilogue” – The European Parliament,
European Commission and European Council. They must agree Omnibus II
• “Long-Term Guarantees Assessment” (LTGA) – a quantitative impact study carried out by the larger European insurance companies
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Where is Solvency II? • 28 January 2013: LTGA launched by EIOPA
• 31 March 2013: Participants in LTGA to submit information
• 14 June 2013: EIOPA to report results of LTGA to the European Commission
• 12 July 2013: EC to report to the rest of the trilogue
• 10 June 2013: European Parliament vote on Omnibus II
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Long-Term Guarantees Assessment
• Report balance sheet (Assets, technical provisions, own funds, SCR, MCR)
• 13 scenarios in total covering: • Different methods for extrapolating swap rates • Different matching adjustments • Different counter-cyclical premiums • Different transitional measures • YE 2011 • YE 2009 (“during” the financial crisis) • YE 2004 (“normal” market conditions)
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Questions • Which do you think will be first - Solvency II or
IFRS?
• Have your firms been focusing on IFRS? Is it on the board’s agenda?
• What will the implications be on data, systems and processes?
• What do you need to be doing now?
