The International Accounting Standards Board (IASB) has substantially completed the development of the model for non-participating contracts under IFRS 4. However, issues relating to its model for insurance contracts with participating features have yet to be resolved. The coming months will be key to resolving the remaining issues in order for a standard to be issued. This webcast provides an update on progress and a discussion about the key outstanding questions. This webcast discussed: • Timelines for completion and interaction with IFRS 9 • IASB model – main tentative decisions to date and key issues for remaining re-deliberations, • Participating contracts – what is the issue, what proposals are being considered, and how will questions be resolved? • The road ahead Link for access the webcast replay: http://www.ey.com/GL/en/Issues/webcast_2015-06-18-1400_ifrs-4-insurance-contracts

1. IFRS 4 Insurance Contracts:
Participating contracts and
update on key issues.
Hosted by the EY Global Insurance Center
18 June 2015

2. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 2 18 June 2015
Today’s moderator
Kevin Griffith
Ernst & Young LLP (UK)
Partner

3. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 3 18 June 2015
Today’s agenda
► Timelines
► General model
► Participating contracts
► The road ahead
Join today’s Twitter discussion:
#EY_Insurance

4. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 4 18 June 2015
Today’s presenters
Darrel Scott
IASB member
Hans van der Veen
Ernst & Young
Accountants LLP (NL)
Senior Manager
Richard Olswang
Prudential plc
Global Actuarial Lead
for IFRS 4 Phase II
Member of EFRAG’s
Insurance Accounting
Working Group

5. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 5 18 June 2015
Today’s agenda
► Timelines
► General model
► Participating contracts
► The road ahead
Join today’s Twitter discussion:
#EY_Insurance

6. Page 6 IFRS 4 Insurance Contracts: Participating contracts and update on key issues18 June 2015
Timelines - New IFRS for insurance contracts
Ongoing IASB deliberations Implementation period Reporting
IFRS4PhaseIIIFRS9
Potential IFRS 4 Phase II Final
standard
Potential IFRS 4 Phase II effective date
1 Jan 2020
Potential IFRS 4 Phase II first annual
financial statements
IFRS 4 Phase II
Re-exposure Draft
Potential IFRS 4 Phase II start
of comparative period
Start of IFRS 9 comparative
period
IFRS 9
Final Standard
2013
IFRS 9 Effective date
1 Jan 2018
Possible revised IFRS 9
classification from IFRS 4 Phase II
transition
First IFRS 9 annual financial
statements
2014 2015 2016 2017 2018 2019 2020

7. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 7 18 June 2015
Today’s agenda
► Timelines
► General model
► Participating contracts
► The road ahead
Join today’s Twitter discussion:
#EY_Insurance

8. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 8 18 June 2015
IASB proposal
General model
Expected value
of future cash
flows
Discount rate
Risk adjustment
Contractual
service margin
Reinsurance
Disaggregation
PresentationSeparation
Definition and
scope
Disclosure
Regulatory Frameworks
Financial Instruments and other accounting changes
Transition
Simplified approach
BuildingBlockApproach

9. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 9 18 June 2015
IASB proposal
Key issues for remaining re-deliberations
► Non-participating contracts:
► Reconciliation with the model for participating contracts
► Scope
► Sweep issues
► Participating contracts
► Transition: application issues raised
► Effective date: timing of the final standard and
link with IFRS 9

10. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 10 18 June 2015
Today’s agenda
► Timelines
► General model
► Participating contracts
► The road ahead
Join today’s Twitter discussion:
#EY_Insurance

11. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 11 18 June 2015
Participating contracts
Background from the ED
Performance
reporting
Options &
Guarantees
Shareholder’s
share in
underlying items
Scope
Interest
expense in PL
Level of aggregation

12. IFRS 4 Insurance Contracts: Participating contracts and update on key issues18 June 2015
Adaptations for Participating contracts
IASB direction
Page 12
How to view the insurer’s economic interest in
underlying items (shareholder’s share):
► View 1: Share in the economic return in underlying items
► Accounted for under applicable standards (e.g., IFRS 9)
► View 2: Variable fee
► Obligation under the contract to pay the policyholder an amount
equal to the value of underlying items less a variable fee
► Variable fee = shareholder’s share less cost of guarantees,
accounted for through the CSM
Scope of variable fee approach:
► 3 criteria to be met, no reassessment after inception

13. IFRS 4 Insurance Contracts: Participating contracts and update on key issues18 June 2015
Adaptations for Participating contracts
IASB direction (continued)
Page 13
Interest expense in profit or loss
► Current period book yield approach:
► Interest expense on the insurance contract liability will be equal
and opposite to investment income on the underlying items
► Difference with the interest expense determined based on current
rates would be reported in OCI
► Scope of current period book yield approach:
► Criteria for variable fee approach, and
► Underlying items are held (to be reassessed after inception)
► Effective yield approach:
► For participating contracts not in scope of the book yield approach
► Several variations discussed by Board in educational sessions

14. IFRS 4 Insurance Contracts: Participating contracts and update on key issues18 June 2015
Participating contracts
Scope
Page 14
► Where will the lines between each of the areas be?
► How many models/variations will there be?
current period
book yield
Non participating
Direct
participating
Indirect
participating
General model Variable fee model
Continuum of insurance contracts
Measurement
General model –
interest expense (OCI/PL)
Current period
book yield
Interest
expense
Type of
contract

15. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 15 18 June 2015
Participating contracts
Resolving the model
Critical issues
► Scope
► ‘Cliff effect’ between the accounting for indirect
and direct participating contracts
► Level of aggregation
► Application to participating contracts, including
mutualisation
► Hedging
► Preventing accounting mismatch

16. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 16 18 June 2015
Today’s agenda
► Timelines
► IASB proposal
► Model for participating contracts
► The road ahead
Join today’s Twitter discussion:
#EY_Insurance

17. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 17 18 June 2015
The road ahead
► The IASB is committed to finalise the project, but
uncertainties around next steps and timing remain
► Resolving the issues of participating contracts and level of
aggregation will be key
► It is likely middle ground needs to be found for some key
areas
 Effective date of the final standard will not be 2018
 How much later then 2018?
 Alignment with IFRS 9 is an important issue for insurers
 Phase II will have a huge impact on insurers, not only for
financial reporting but also for operations
 Preparation should pick up momentum, whilst remaining flexible

18. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 18 18 June 2015
Contact us
Follow us on Twitter: @EY_Webcasts
Kevin Griffith
Ernst & Young LLP (UK)
Evan Bogardus
Ernst & Young LLP (US)
Dana D’Amelio
Ernst & Young LLP (US)
+ 44 (0)20 7951 0905
kgriffith@uk.ey.com
+ 1 (212) 773 1428
evan.bogardus@ey.com
+ 1 (212) 773 6845
Dana.DAmelio@ey.com

19. IFRS 4 Insurance Contracts: Participating contracts and update on key issuesPage 19 18 June 2015
Resources
► Global Insurance website
www.ey.com/insurance
► IFRS Insurance Insights
www.ey.com/insuranceifrs
► Solvency II
www.ey.com/solvencyii