Page 1 of 2Dear Sir/MadamHKFRS 17 Insurance ContractsThe Financial Reporting Standards Committee (FRSC) of the Hong Kong Institute ofCertified Public Accountants (Institute) has completed its due process for issuing a HongKong standard (refer Appendix 1) and has approved HKFRS 17 Insurance Contracts, aword-for-word adoption of IFRS 17 issued by the International Accounting Standards Board.The FRSC considers that HKFRS 17 is a high quality standard that will lead to companiesreporting meaningful information to stakeholders compared to the extant reporting standard.The FRSC therefore believes that the new standard will improve Hong Kong insurancecompanies' global standing as well as maintain Hong Kong as a leading financial centre.In accordance with our international convergence policy, HKFRS 17 has the same effectivedate as IFRS 17 (1 January 2021) so that all companies globally strive to apply the newstandard at the same time. The FRSC considers that having a globally consistent effectivedate is extremely important to Hong Kong as an international finance centre. Nevertheless,after the IASB issued IFRS 17 (and before the FRSC arrived at a decision to approveHKFRS 17), the FRSC was made aware of the following:
Concerns about the effective date of 1 January 2021, and therefore whether HongKong insurance companies have sufficient time to implement HKFRS 17 because ofthe concurrent development of new regulatory capital requirements in Hong Kong anda lack of specialist resources across Asia.Concerns about whether other jurisdictions that apply IFRS Standards, as issued bythe IASB, will apply IFRS 17 consistently and/or on the same effective date.The FRSC acknowledges the concerns and sees that these are important to Hong Kongcompanies. The FRSC considered these concerns in depth and believed that this is anisolated and unprecedented situation. At the same time, the FRSC is aware thatHKFRS 17 brings about major changes to the way an insurance company currently reportsand manages its information systems. In this regard, the FRSC has also been asked by anumber of Hong Kong insurance companies to provide HKFRS 17 as soon as possible sothat they can get started with their implementation plans. Some constituents also informedthe FRSC that it is not necessary to diverge from the effective date of IFRS 17 at this pointin time.The FRSC decided that, on balance, it should approve and issue HKFRS 17 with the sameeffective date as IFRS 17 but will undertake an ongoing monitoring and assessment ofinternational and Hong Kong developments. This ongoing reassessment will enable theFRSC to objectively consider how to respond to global developments and implementationchallenges, including working in coordination with the IASB and other standard-settingbodies from around the world and whether it is necessary to deviate from IFRS 17, whichthe FRSC can do in some exceptional cases.At recent meetings with the IASB, the FRSC communicated to the IASB the concernsmentioned above so that the IASB is also prepared for responding to these challenges.The FRSC subsequently wrote to the IASB with the same messages and recommendedsteps (refer Appendix 2).I trust that you can appreciate that the FRSC has a robust standard-setting due processwhich has been fully complied with in reaching its decision to issue HKFRS 17. However,the FRSC's work is not yet done. The FRSC undertakes to do the following to assistcompanies in implementing the new standard.Page 2 of 2Implementation support groupThe FRSC decided to establish an implementation support group for Hong Kongstakeholders, which provides a forum to raise and discuss questions on and challenges inimplementing HKFRS 17. Companies or firms that meet the membership criteria areencouraged to apply for a seat (refer Appendix 3). Two members of the IASB's TransitionResource Group (TRG) who operate in Hong Kong have undertaken to represent issuesraised through this Hong Kong support group at the IASB's TRG meetings.Enhanced training and supportThe Institute will continue to organize technical seminars and workshops on HKFRS 17. Ifyou would like to be informed of new HKFRS 17 training and other supporting events,please contact us. A suggested roadmap with a timeline of key milestones in relation toimplementation will be made available in due course.Cooperation with the Insurance Authority and the Hong Kong Federation of InsurersThe FRSC will work closely with both institutions to ensure they are well supported inunderstanding HKFRS 17. In particular, the HKICPA will support the IA to assist them inappreciating how it could take advantage of the new current value measure of insuranceliabilities under HKFRS 17 when it develops the new regulatory capital regime for HongKong insurance companies. The FRSC will also work closely with HKFI to ensure thatmember companies are familiar with the requirements of the new standard, and to monitorimplementation developments.Closely monitor and report global developmentsThe HKICPA is fortunate to have well established connections with standard-settersaround the world as it is an active member of the Asian-Oceanian Standard-Setters Groupand the International Forum of Accounting Standard Setters. These groups of standard-setting bodies include those from Australia, Canada, China, Europe, Japan, Korea andSouth East Asia. The FRSC has been and will continue to be in contact with thesestandard-setters on challenges they are having locally, and work together to lobby changesto IFRS 17 and/or its effective date, if necessary. The HKICPA also works closely with theIASB who has offered to provide support to Hong Kong. The FRSC plans to leverage onthe IASB's support to provide in-person investor education as well as preparer education.If you have any questions regarding the matters raised in this letter, please do not hesitateto contact:
Chris Joy (chris@hkicpa.org.hk)
Executive DirectorChristina Ng (christinang@hkicpa.org.hk)
Director, Standard SettingKam Leung (kamleung@hkicpa.org.hk)
Associate Director, Standard SettingSincerely,Chris JoyExecutive Director, Standards and RegulationsPage 1 of 1Overview of FRSC activities prior to issuing HKFRS 17Hong Kong Financial Reporting Standards are developed through a due process outlined in thePreface to Hong Kong Financial Reporting Standards, paragraphs 27 to 29. As with all otherstandards, HKFRS 17 also followed this due process.The following points relate to the due process for issuing a HKFRS that is converged with IFRSStandards (stipulated in paragraph 28 of the Preface to HKFRS)
In 2010 and 2013, the Institute conducted public consultations in Hong Kong on the IASB's proposedaccounting standard for Insurance Contracts. Following public consultations, the Institute commentedon the IASB proposals, which took into consideration feedback received from stakeholders.In October 2015 and January 2016, the Institute held roundtable meetings to discuss aspects of thethen forthcoming Insurance Contracts standard. Insurers, banks, asset management companies,accounting firms, the former insurance regulator (Office of the Commissioner of Insurance) and IASBrepresentatives participated at the meetings. Further outreach with targeted stakeholders took placein August and September 2016 to seek any remaining key concerns with the forthcoming standard.The IASB also sought insurers to participate in a field testing of the forthcoming Insurance Contractsstandard. The field testing exercise identified issues around interpretation of the requirements andpotential operational difficulties that might arise when applying those requirements. The Institute isaware that at least one large Hong Kong insurer participated in that exercise.A key concern arising from the roundtables, outreach activities and field testing related to the IASB'sthen tentative criteria for grouping insurance contracts, which according to feedback lackedinteraction with the operations of an insurance business.The IASB addressed this concern in IFRS 17 to the extent possible and issued IFRS 17 in May 2017.The IASB also took up the Institute's recommendation to establish a Transition Resource Group (TRG)
for IFRS 17 to provide implementation support post-issuance of the standard including to consider, ifpossible, better ways to implement the grouping of contracts.After analysing the changes made by the IASB in IFRS 17 to address the concern above, includingthe IASB's effects analysis of IFRS 17 (Effects Analysis: IFRS 17 Insurance Contracts, May 2017),the Institute was satisfied that it has fulfilled its stipulated due process requirements for issuingHKFRS 17.The following points are additional initiatives the FRSC undertook on top of the stipulated HKFRS dueprocessIn July 2017, subsequent to the IASB issuing IFRS 17, the Institute conducted targeted outreach withHong Kong listed insurers and one private insurer. The Institute noted that preliminary implementationof IFRS 17 is already underway. These companies did not raise new concerns on the standard. Onecompany commented that having a standard that provides consistent accounting for insurancecontracts across jurisdictions is immensely important, particularly for global organisations—andtherefore supports IFRS 17 as a starting point to achieve that.From July to November 2017, the Institute continued its outreach and education on IFRS 17 to HongKong stakeholders, including the regulator, investors and financial analysts. The Institute notes thatthe Hong Kong investor community sympathises on the potential implementation costs, but issupportive of Hong Kong insurers applying IFRS 17. This is because the change in accountingmodels will provide much greater insight into the financial performance and financial position ofinsurers, and provides investors with a better understanding of insurers’ risks. During this time, theHong Kong Federation of Insurers and the Insurance Authority expressed support to the newstandard, but shared their concerns on implementation challenges that the industry might faceleading up to the effective date. The Institute is also aware of the market concern regarding potentiallack of resources and potential inconsistent adoption/application of the standard in other jurisdictions.The Institute also communicated with national standard-setters of other capital markets about theirplans for adopting IFRS 17. To date, Australia, Canada, Malaysia, New Zealand and South Africahave adopted. Korea is in the process of translating IFRS 17, whilst Europe, Japan and Singapore aredeliberating the adoption of the standard. China plans to add IFRS 17 to its 2018 standardsconvergence work program.Appendix 1Our Ref.: C/FRSCSent through electronic mail3 January 2018Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,IFRS 17 Insurance ContractsThe Hong Kong Institute of Certified Public Accountants ("HKICPA") is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,and ethics for professional accountants, in Hong Kong.In accordance with our convergence policy, HKICPA has approved the issuance ofHKFRS 17 Insurance Contracts, a word-for-word adoption of IFRS 17 including transitionalprovisions and effective date. HKICPA's strong commitment to high quality globalstandards that are principle-based, understandable and implementable is unchanged.However, the adoption of HKFRS 17 has presented the HKICPA with circumstances thatwe wish to share with the IASB.Hong Kong's insurance regulator is developing its new regulatory capital requirements,expected to be rolled out in phases during 2021 to 2022. Hong Kong insurers will also berequired to provide detailed data for quantitative impact studies in the period leading up tothe effective date of HKFRS 17. Our insurance regulator is therefore concerned that thiswould put Hong Kong insurers, particularly the smaller insurers in the non-life insurancesector, under substantial strain, as they would be required to implement new financialreporting and regulatory capital requirements at the same time.Additionally, our insurance regulator has observed that smaller insurers in particular do nottypically have the in-house actuarial expertise required to cope with the significant changesin financial reporting requirements that HKFRS 17 introduces. Given the anticipated surgein demand for actuarial expertise from all insurers in the market, it would be difficult,particularly for these smaller insurers, to recruit experienced actuarial staff or engage well-qualified consultants to ensure implementation of HKFRS 17 by its effective date. HKICPAis aware that this shortage in actuarial expertise and other implementation resourcechallenges, such as the availability of IT solutions, is not unique to Hong Kong insurers,and is a concern shared across the Asia-Oceania region.HKICPA is aware of concerns among Hong Kong stakeholders about the possibility ofinconsistent adoption or application of IFRS 17 globally. As one of the leading globalfinancial centres, Hong Kong is home to many multinational insurance companies thatoperate a wide network of insurance businesses in Asia and other jurisdictions that applyIFRS Standards. The key concern from our stakeholders, in this regard, is that othernational or regional standard-setters or regulators may introduce guidance orpronouncements that would give more time to implement IFRS 17 or allow the applicationof its requirement in a way that is simpler than permitted under IFRS 17. This could createAppendix 2an unfair competitive disadvantage for entities reporting under HKFRS. HKICPA is alsoaware that these concerns are not unique to Hong Kong insurers.HKICPA considers that having a globally consistent standard, including effective date, isextremely important to Hong Kong as an international finance centre and is monitoring theprogress of implementation and any issues that may arise. However, should there be aneed in the future, HKICPA may consider whether it is necessary to deviate from IFRS 17,which we can do in some exceptional cases. HKICPA would also be supportive of theIASB modifying IFRS 17 if pervasive issues that prevent companies from complying withIFRS 17 were identified.In these circumstances, HKICPA encourages the IASB to continue its monitoring ofadoption and outreach activities, and proactively seek feedback from reporting entities asthey progress with their implementation projects. HKICPA would also be supportive of theIASB using the outcome of this outreach activity to promptly decide, where appropriate,amendments or simplifications to IFRS 17, especially if the requirements of the newstandard were operationally difficult to meet.Finally, HKICPA appreciates the ongoing support the IASB has offered to HKICPA and itsstakeholders in relation to IFRS 17, such as the investor and regulator education sessionsheld in Hong Kong in the second half of 2017. HKICPA urges the IASB to continue itseducation efforts with preparers, investors, regulators and governments around the worldto rally support behind IFRS 17. The IASB is also recommended to monitor the status ofavailable IT solutions, actuarial and other specialist resources for insurers globally as thiswill impact the companies' ability to practically implement IFRS 17 by 2021. Jurisdictionsand companies that are implementing IFRS 17 would, to some extent, be reassured by thislevel of IASB support.HKICPA supports the establishment of IASB's IFRS 17 Transition Resource Group andappreciates the appointment of Hong Kong-based insurance representatives as membersof this Group. HKICPA is setting up a HKFRS 17 implementation support group withsimilar objectives to the IASB's TRG. We will continue to assess implementationdevelopments in Hong Kong, share with the IASB's TRG the challenges with implementingHKFRS 17 and work together with the IASB in resolving those challenges.If you have any questions regarding the matters raised in this letter, please contact me(christinang@hkicpa.org.hk), or Kam Leung (kamleung@hkicpa.org.hk), Associate Directorof our Standard Setting Department.Yours sincerely,Christina NgDirector, Standard Setting DepartmentEstablishment of Hong Kong Insurance Implementation Support GroupOn 12 December 2017, the Hong Kong Institute of Certified Public Accountants(HKICPA) approved the issuance of HKFRS 17 Insurance Contracts.HKFRS 17 represents a fundamental change to existing practice for most entitiesissuing insurance contracts. In view of the magnitude of the change, HKICPA willsupport implementation of HKFRS 17 through a variety of activities—includingestablishing a Hong Kong Insurance Implementation Support Group ("HKIISG").The objectives of the HKIISG are to:
a)
solicit, analyse, and discuss stakeholder questions raised regardingimplementation of HKFRS 17;
b)
provide a forum for stakeholders to follow the discussion of questions raised;
c)
identify implementation issues which need to be brought to the attention of theIASB's Transition Resource Group on IFRS 17 Insurance Contracts;
d)
identify areas of focus for educational activities; ande)
provide recommendations for the HKICPA's Financial Reporting StandardsCommittee (FRSC) to consider, which may include submitting a question to theIFRS Interpretations Committee or writing to the IASB.The HKIISG will have no authority—no decisions, interpretation or guidance will beissued by the HKIISG. Refer to Annex 1 for an illustration of the operatingprocedures and Terms of Reference.Call for nominationsHKICPA is seeking 10 candidates for membership of the HKIISG. Candidates whomeet the criteria should be appointed as representatives of their organisation.Candidates who fulfill the following criteria are encouraged to apply for membership:
a) have practical and direct knowledge of the ongoing implementation of HKFRS 17;
b) be capable of sharing their views on the questions submitted;
c) be capable of considering different perspectives and have an ability to participatein a free exchange of ideas; andd) have expertise in a broad spread of insurance product types.Candidates should apply by sending their resume and a short summary on how theyhave fulfilled the criteria to kamleung@hkicpa.org.hk. The deadline for applicationsis on 19 January 2018.The membership of HKIISG will be announced by early February 2018.Appendix 3Page 1 of 3TERMS OF REFERENCEHKFRS 17 Insurance ContractsImplementation Support GroupEstablishment of an Insurance Implementation Support Group
1.HKFRS 17 Insurance Contracts, effective on 1 January 2021, represents afundamental change to existing practice for most entities issuing insurance contractsand is therefore expected to require significant implementation effort.
2.In view of the magnitude of the change, the Institute's Financial Reporting StandardsCommittee (FRSC) decided to form a Hong Kong Insurance Implementation SupportGroup (HKIISG) to support stakeholder implementation of HKFRS 17.Objectives and scope of activities
3.The objectives of the HKIISG are to:
a)
solicit, analyse, and discuss stakeholder questions raised regardingimplementation of HKFRS 17;
b)
provide a forum for stakeholders to follow the discussion of questions raised;
c)
identify implementation issues which need to be brought to the attention of theIASB's Transition Resource Group on IFRS 17 Insurance Contracts;
d)
identify areas of focus for educational activities; ande)
provide recommendations for the FRSC to consider, which may includesubmitting a question to the IFRS Interpretations Committee or writing to theIASB.
4.The scope of HKIISG meeting discussions will be limited to stakeholder questionsraised on implementation of HKFRS 17.
5.The HKIISG will not be expected to discuss questions that are solely actuarial innature.
6.The HKIISG has no authority. No decisions, interpretation or guidance will be issuedby the HKIISG.Role and expectations of HKIISG members
7.Members of the HKIISG should:
a)
have practical and direct knowledge of the ongoing implementation ofHKFRS 17;
b)
be capable of sharing their views on the questions submitted;
c)
be capable of considering different perspectives and have an ability toparticipate in a free exchange of ideas; andd)
have expertise in a broad spread of insurance product types.Composition and Membership of HKIISG
8.Membership is by organisation. Member organisations nominate representativesthat meet the criteria in paragraph 7 to participate at meetings.
9.Membership may be limited to a maximum of 10 to ensure effective discussion anddebate. Membership of the HKIISG may be subject to review at any time.
10.Hong Kong representatives that are members of the IASB's TRG for IFRS 17Insurance Contracts will automatically have a seat on the HKIISG.
11.As the focus is on accounting implementation questions, priority will be given toorganizations that issue insurance contracts or are auditors/consultants of theinsurance industry. Consequently, not every applicant will be invited to join thegroup.ANNEX 1Page 2 of 3
12.Observer seats are available for prudential and securities regulators, actuaries, andany company implementing the insurance standard. Observers must register toattend the meetings.Operating Procedures
13.Questions may be submitted by any stakeholder. The questions must meet thefollowing criteria:
a)
must be focussed on, or arise from, implementing HKFRS 17; andb)
may result in possible diversity in practice.
14.Questions not focused on the implementation of HKFRS 17, for example,implementation of other standards in parallel with HKFRS 17; will be referred to theHKICPA's Insurance Regulatory Advisory Panel (IRAP), which deals with allinsurance related matters.
15.A submission should detail what the question is, background to the question, and whythey are asking it. For example, does the question arise because: it is unclear how toapply a specific requirement in the standard; there is an inconsistency within thestandard or with other HKFRS standards; or there is an operational impracticality; etc.
16.FRSC is the convener of HKIISG meetings. All questions submitted will be evaluatedagainst the submission criteria, and referred to IRAP or HKIISG. Relevant questionswill be circulated to HKIISG in advance of each meeting.
17.HKIISG members will share their views on each submission at the meetings.
18.HKIISG members are expected to analyse and evaluate each submission todetermine whether an issue needs to be brought to the attention of the IASB's TRG, orneeds to be included as an area of focus for education activities and seminars.
19.A log of all submissions and their resulting outcome will be maintained. Meetingsummaries of the discussions held will also be prepared.
20.Meetings will be scheduled to take into account the need to allow for an initial periodfor interested parties to become familiar with the Standard and submit questions, andfor a period of stability prior to the mandatory effective date of HKFRS 17.
21.HKIISG meetings may be scheduled both before and after the IASB's TRG meetings,so that members have the opportunity to consider the issues and the outcomes of theTRG meetings, as well as decide if any follow up action is necessary.
22.Members shall serve on a voluntary, unpaid basis.
23.Similar to the IASB’s TRG, the HKIISG will have a limited life (for example, 18 months)
during the transition period to allow a period of calm for insurers to focus on fullimplementation. It is therefore essential for implementation issues to be raised earlyin the transition period.Conflicts of Interest
24.If a member of the HKIISG believes he/she may have a conflict of interest regarding amatter they are consulted on, the member should inform FRSC, who will determinethe future participation of the member about that matter.Page 3 of 3Hong Kong Insurance Implementation Support Group:
Illustration of Operating Procedures
Letter to Hong Kong authorized Insurers: HKFRS 17 Insurance Contracts
下载原件Page 1 of 2Dear Sir/MadamHKFRS 17 Insurance ContractsThe Financial Reporting Standards Committee (FRSC) of the Hong Kong Institute ofCertified Public Accountants (Institute) has completed its due process for issuing a HongKong standard (refer Appendix 1) and has approved HKFRS 17 Insurance Contracts, aword-for-word adoption of IFRS 17 issued by the International Accounting Standards Board.The FRSC considers that HKFRS 17 is a high quality standard that will lead to companiesreporting meaningful information to stakeholders compared to the extant reporting standard.The FRSC therefore believes that the new standard will improve Hong Kong insurancecompanies' global standing as well as maintain Hong Kong as a leading financial centre.In accordance with our international convergence policy, HKFRS 17 has the same effectivedate as IFRS 17 (1 January 2021) so that all companies globally strive to apply the newstandard at the same time. The FRSC considers that having a globally consistent effectivedate is extremely important to Hong Kong as an international finance centre. Nevertheless,after the IASB issued IFRS 17 (and before the FRSC arrived at a decision to approveHKFRS 17), the FRSC was made aware of the following:
Concerns about the effective date of 1 January 2021, and therefore whether HongKong insurance companies have sufficient time to implement HKFRS 17 because ofthe concurrent development of new regulatory capital requirements in Hong Kong anda lack of specialist resources across Asia.Concerns about whether other jurisdictions that apply IFRS Standards, as issued bythe IASB, will apply IFRS 17 consistently and/or on the same effective date.The FRSC acknowledges the concerns and sees that these are important to Hong Kongcompanies. The FRSC considered these concerns in depth and believed that this is anisolated and unprecedented situation. At the same time, the FRSC is aware thatHKFRS 17 brings about major changes to the way an insurance company currently reportsand manages its information systems. In this regard, the FRSC has also been asked by anumber of Hong Kong insurance companies to provide HKFRS 17 as soon as possible sothat they can get started with their implementation plans. Some constituents also informedthe FRSC that it is not necessary to diverge from the effective date of IFRS 17 at this pointin time.The FRSC decided that, on balance, it should approve and issue HKFRS 17 with the sameeffective date as IFRS 17 but will undertake an ongoing monitoring and assessment ofinternational and Hong Kong developments. This ongoing reassessment will enable theFRSC to objectively consider how to respond to global developments and implementationchallenges, including working in coordination with the IASB and other standard-settingbodies from around the world and whether it is necessary to deviate from IFRS 17, whichthe FRSC can do in some exceptional cases.At recent meetings with the IASB, the FRSC communicated to the IASB the concernsmentioned above so that the IASB is also prepared for responding to these challenges.The FRSC subsequently wrote to the IASB with the same messages and recommendedsteps (refer Appendix 2).I trust that you can appreciate that the FRSC has a robust standard-setting due processwhich has been fully complied with in reaching its decision to issue HKFRS 17. However,the FRSC's work is not yet done. The FRSC undertakes to do the following to assistcompanies in implementing the new standard.Page 2 of 2Implementation support groupThe FRSC decided to establish an implementation support group for Hong Kongstakeholders, which provides a forum to raise and discuss questions on and challenges inimplementing HKFRS 17. Companies or firms that meet the membership criteria areencouraged to apply for a seat (refer Appendix 3). Two members of the IASB's TransitionResource Group (TRG) who operate in Hong Kong have undertaken to represent issuesraised through this Hong Kong support group at the IASB's TRG meetings.Enhanced training and supportThe Institute will continue to organize technical seminars and workshops on HKFRS 17. Ifyou would like to be informed of new HKFRS 17 training and other supporting events,please contact us. A suggested roadmap with a timeline of key milestones in relation toimplementation will be made available in due course.Cooperation with the Insurance Authority and the Hong Kong Federation of InsurersThe FRSC will work closely with both institutions to ensure they are well supported inunderstanding HKFRS 17. In particular, the HKICPA will support the IA to assist them inappreciating how it could take advantage of the new current value measure of insuranceliabilities under HKFRS 17 when it develops the new regulatory capital regime for HongKong insurance companies. The FRSC will also work closely with HKFI to ensure thatmember companies are familiar with the requirements of the new standard, and to monitorimplementation developments.Closely monitor and report global developmentsThe HKICPA is fortunate to have well established connections with standard-settersaround the world as it is an active member of the Asian-Oceanian Standard-Setters Groupand the International Forum of Accounting Standard Setters. These groups of standard-setting bodies include those from Australia, Canada, China, Europe, Japan, Korea andSouth East Asia. The FRSC has been and will continue to be in contact with thesestandard-setters on challenges they are having locally, and work together to lobby changesto IFRS 17 and/or its effective date, if necessary. The HKICPA also works closely with theIASB who has offered to provide support to Hong Kong. The FRSC plans to leverage onthe IASB's support to provide in-person investor education as well as preparer education.If you have any questions regarding the matters raised in this letter, please do not hesitateto contact:
Chris Joy (chris@hkicpa.org.hk)
Executive DirectorChristina Ng (christinang@hkicpa.org.hk)
Director, Standard SettingKam Leung (kamleung@hkicpa.org.hk)
Associate Director, Standard SettingSincerely,Chris JoyExecutive Director, Standards and RegulationsPage 1 of 1Overview of FRSC activities prior to issuing HKFRS 17Hong Kong Financial Reporting Standards are developed through a due process outlined in thePreface to Hong Kong Financial Reporting Standards, paragraphs 27 to 29. As with all otherstandards, HKFRS 17 also followed this due process.The following points relate to the due process for issuing a HKFRS that is converged with IFRSStandards (stipulated in paragraph 28 of the Preface to HKFRS)
In 2010 and 2013, the Institute conducted public consultations in Hong Kong on the IASB's proposedaccounting standard for Insurance Contracts. Following public consultations, the Institute commentedon the IASB proposals, which took into consideration feedback received from stakeholders.In October 2015 and January 2016, the Institute held roundtable meetings to discuss aspects of thethen forthcoming Insurance Contracts standard. Insurers, banks, asset management companies,accounting firms, the former insurance regulator (Office of the Commissioner of Insurance) and IASBrepresentatives participated at the meetings. Further outreach with targeted stakeholders took placein August and September 2016 to seek any remaining key concerns with the forthcoming standard.The IASB also sought insurers to participate in a field testing of the forthcoming Insurance Contractsstandard. The field testing exercise identified issues around interpretation of the requirements andpotential operational difficulties that might arise when applying those requirements. The Institute isaware that at least one large Hong Kong insurer participated in that exercise.A key concern arising from the roundtables, outreach activities and field testing related to the IASB'sthen tentative criteria for grouping insurance contracts, which according to feedback lackedinteraction with the operations of an insurance business.The IASB addressed this concern in IFRS 17 to the extent possible and issued IFRS 17 in May 2017.The IASB also took up the Institute's recommendation to establish a Transition Resource Group (TRG)
for IFRS 17 to provide implementation support post-issuance of the standard including to consider, ifpossible, better ways to implement the grouping of contracts.After analysing the changes made by the IASB in IFRS 17 to address the concern above, includingthe IASB's effects analysis of IFRS 17 (Effects Analysis: IFRS 17 Insurance Contracts, May 2017),the Institute was satisfied that it has fulfilled its stipulated due process requirements for issuingHKFRS 17.The following points are additional initiatives the FRSC undertook on top of the stipulated HKFRS dueprocessIn July 2017, subsequent to the IASB issuing IFRS 17, the Institute conducted targeted outreach withHong Kong listed insurers and one private insurer. The Institute noted that preliminary implementationof IFRS 17 is already underway. These companies did not raise new concerns on the standard. Onecompany commented that having a standard that provides consistent accounting for insurancecontracts across jurisdictions is immensely important, particularly for global organisations—andtherefore supports IFRS 17 as a starting point to achieve that.From July to November 2017, the Institute continued its outreach and education on IFRS 17 to HongKong stakeholders, including the regulator, investors and financial analysts. The Institute notes thatthe Hong Kong investor community sympathises on the potential implementation costs, but issupportive of Hong Kong insurers applying IFRS 17. This is because the change in accountingmodels will provide much greater insight into the financial performance and financial position ofinsurers, and provides investors with a better understanding of insurers’ risks. During this time, theHong Kong Federation of Insurers and the Insurance Authority expressed support to the newstandard, but shared their concerns on implementation challenges that the industry might faceleading up to the effective date. The Institute is also aware of the market concern regarding potentiallack of resources and potential inconsistent adoption/application of the standard in other jurisdictions.The Institute also communicated with national standard-setters of other capital markets about theirplans for adopting IFRS 17. To date, Australia, Canada, Malaysia, New Zealand and South Africahave adopted. Korea is in the process of translating IFRS 17, whilst Europe, Japan and Singapore aredeliberating the adoption of the standard. China plans to add IFRS 17 to its 2018 standardsconvergence work program.Appendix 1Our Ref.: C/FRSCSent through electronic mail3 January 2018Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,IFRS 17 Insurance ContractsThe Hong Kong Institute of Certified Public Accountants ("HKICPA") is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditing,and ethics for professional accountants, in Hong Kong.In accordance with our convergence policy, HKICPA has approved the issuance ofHKFRS 17 Insurance Contracts, a word-for-word adoption of IFRS 17 including transitionalprovisions and effective date. HKICPA's strong commitment to high quality globalstandards that are principle-based, understandable and implementable is unchanged.However, the adoption of HKFRS 17 has presented the HKICPA with circumstances thatwe wish to share with the IASB.Hong Kong's insurance regulator is developing its new regulatory capital requirements,expected to be rolled out in phases during 2021 to 2022. Hong Kong insurers will also berequired to provide detailed data for quantitative impact studies in the period leading up tothe effective date of HKFRS 17. Our insurance regulator is therefore concerned that thiswould put Hong Kong insurers, particularly the smaller insurers in the non-life insurancesector, under substantial strain, as they would be required to implement new financialreporting and regulatory capital requirements at the same time.Additionally, our insurance regulator has observed that smaller insurers in particular do nottypically have the in-house actuarial expertise required to cope with the significant changesin financial reporting requirements that HKFRS 17 introduces. Given the anticipated surgein demand for actuarial expertise from all insurers in the market, it would be difficult,particularly for these smaller insurers, to recruit experienced actuarial staff or engage well-qualified consultants to ensure implementation of HKFRS 17 by its effective date. HKICPAis aware that this shortage in actuarial expertise and other implementation resourcechallenges, such as the availability of IT solutions, is not unique to Hong Kong insurers,and is a concern shared across the Asia-Oceania region.HKICPA is aware of concerns among Hong Kong stakeholders about the possibility ofinconsistent adoption or application of IFRS 17 globally. As one of the leading globalfinancial centres, Hong Kong is home to many multinational insurance companies thatoperate a wide network of insurance businesses in Asia and other jurisdictions that applyIFRS Standards. The key concern from our stakeholders, in this regard, is that othernational or regional standard-setters or regulators may introduce guidance orpronouncements that would give more time to implement IFRS 17 or allow the applicationof its requirement in a way that is simpler than permitted under IFRS 17. This could createAppendix 2an unfair competitive disadvantage for entities reporting under HKFRS. HKICPA is alsoaware that these concerns are not unique to Hong Kong insurers.HKICPA considers that having a globally consistent standard, including effective date, isextremely important to Hong Kong as an international finance centre and is monitoring theprogress of implementation and any issues that may arise. However, should there be aneed in the future, HKICPA may consider whether it is necessary to deviate from IFRS 17,which we can do in some exceptional cases. HKICPA would also be supportive of theIASB modifying IFRS 17 if pervasive issues that prevent companies from complying withIFRS 17 were identified.In these circumstances, HKICPA encourages the IASB to continue its monitoring ofadoption and outreach activities, and proactively seek feedback from reporting entities asthey progress with their implementation projects. HKICPA would also be supportive of theIASB using the outcome of this outreach activity to promptly decide, where appropriate,amendments or simplifications to IFRS 17, especially if the requirements of the newstandard were operationally difficult to meet.Finally, HKICPA appreciates the ongoing support the IASB has offered to HKICPA and itsstakeholders in relation to IFRS 17, such as the investor and regulator education sessionsheld in Hong Kong in the second half of 2017. HKICPA urges the IASB to continue itseducation efforts with preparers, investors, regulators and governments around the worldto rally support behind IFRS 17. The IASB is also recommended to monitor the status ofavailable IT solutions, actuarial and other specialist resources for insurers globally as thiswill impact the companies' ability to practically implement IFRS 17 by 2021. Jurisdictionsand companies that are implementing IFRS 17 would, to some extent, be reassured by thislevel of IASB support.HKICPA supports the establishment of IASB's IFRS 17 Transition Resource Group andappreciates the appointment of Hong Kong-based insurance representatives as membersof this Group. HKICPA is setting up a HKFRS 17 implementation support group withsimilar objectives to the IASB's TRG. We will continue to assess implementationdevelopments in Hong Kong, share with the IASB's TRG the challenges with implementingHKFRS 17 and work together with the IASB in resolving those challenges.If you have any questions regarding the matters raised in this letter, please contact me(christinang@hkicpa.org.hk), or Kam Leung (kamleung@hkicpa.org.hk), Associate Directorof our Standard Setting Department.Yours sincerely,Christina NgDirector, Standard Setting DepartmentEstablishment of Hong Kong Insurance Implementation Support GroupOn 12 December 2017, the Hong Kong Institute of Certified Public Accountants(HKICPA) approved the issuance of HKFRS 17 Insurance Contracts.HKFRS 17 represents a fundamental change to existing practice for most entitiesissuing insurance contracts. In view of the magnitude of the change, HKICPA willsupport implementation of HKFRS 17 through a variety of activities—includingestablishing a Hong Kong Insurance Implementation Support Group ("HKIISG").The objectives of the HKIISG are to:
a)
solicit, analyse, and discuss stakeholder questions raised regardingimplementation of HKFRS 17;
b)
provide a forum for stakeholders to follow the discussion of questions raised;
c)
identify implementation issues which need to be brought to the attention of theIASB's Transition Resource Group on IFRS 17 Insurance Contracts;
d)
identify areas of focus for educational activities; ande)
provide recommendations for the HKICPA's Financial Reporting StandardsCommittee (FRSC) to consider, which may include submitting a question to theIFRS Interpretations Committee or writing to the IASB.The HKIISG will have no authority—no decisions, interpretation or guidance will beissued by the HKIISG. Refer to Annex 1 for an illustration of the operatingprocedures and Terms of Reference.Call for nominationsHKICPA is seeking 10 candidates for membership of the HKIISG. Candidates whomeet the criteria should be appointed as representatives of their organisation.Candidates who fulfill the following criteria are encouraged to apply for membership:
a) have practical and direct knowledge of the ongoing implementation of HKFRS 17;
b) be capable of sharing their views on the questions submitted;
c) be capable of considering different perspectives and have an ability to participatein a free exchange of ideas; andd) have expertise in a broad spread of insurance product types.Candidates should apply by sending their resume and a short summary on how theyhave fulfilled the criteria to kamleung@hkicpa.org.hk. The deadline for applicationsis on 19 January 2018.The membership of HKIISG will be announced by early February 2018.Appendix 3Page 1 of 3TERMS OF REFERENCEHKFRS 17 Insurance ContractsImplementation Support GroupEstablishment of an Insurance Implementation Support Group
1.HKFRS 17 Insurance Contracts, effective on 1 January 2021, represents afundamental change to existing practice for most entities issuing insurance contractsand is therefore expected to require significant implementation effort.
2.In view of the magnitude of the change, the Institute's Financial Reporting StandardsCommittee (FRSC) decided to form a Hong Kong Insurance Implementation SupportGroup (HKIISG) to support stakeholder implementation of HKFRS 17.Objectives and scope of activities
3.The objectives of the HKIISG are to:
a)
solicit, analyse, and discuss stakeholder questions raised regardingimplementation of HKFRS 17;
b)
provide a forum for stakeholders to follow the discussion of questions raised;
c)
identify implementation issues which need to be brought to the attention of theIASB's Transition Resource Group on IFRS 17 Insurance Contracts;
d)
identify areas of focus for educational activities; ande)
provide recommendations for the FRSC to consider, which may includesubmitting a question to the IFRS Interpretations Committee or writing to theIASB.
4.The scope of HKIISG meeting discussions will be limited to stakeholder questionsraised on implementation of HKFRS 17.
5.The HKIISG will not be expected to discuss questions that are solely actuarial innature.
6.The HKIISG has no authority. No decisions, interpretation or guidance will be issuedby the HKIISG.Role and expectations of HKIISG members
7.Members of the HKIISG should:
a)
have practical and direct knowledge of the ongoing implementation ofHKFRS 17;
b)
be capable of sharing their views on the questions submitted;
c)
be capable of considering different perspectives and have an ability toparticipate in a free exchange of ideas; andd)
have expertise in a broad spread of insurance product types.Composition and Membership of HKIISG
8.Membership is by organisation. Member organisations nominate representativesthat meet the criteria in paragraph 7 to participate at meetings.
9.Membership may be limited to a maximum of 10 to ensure effective discussion anddebate. Membership of the HKIISG may be subject to review at any time.
10.Hong Kong representatives that are members of the IASB's TRG for IFRS 17Insurance Contracts will automatically have a seat on the HKIISG.
11.As the focus is on accounting implementation questions, priority will be given toorganizations that issue insurance contracts or are auditors/consultants of theinsurance industry. Consequently, not every applicant will be invited to join thegroup.ANNEX 1Page 2 of 3
12.Observer seats are available for prudential and securities regulators, actuaries, andany company implementing the insurance standard. Observers must register toattend the meetings.Operating Procedures
13.Questions may be submitted by any stakeholder. The questions must meet thefollowing criteria:
a)
must be focussed on, or arise from, implementing HKFRS 17; andb)
may result in possible diversity in practice.
14.Questions not focused on the implementation of HKFRS 17, for example,implementation of other standards in parallel with HKFRS 17; will be referred to theHKICPA's Insurance Regulatory Advisory Panel (IRAP), which deals with allinsurance related matters.
15.A submission should detail what the question is, background to the question, and whythey are asking it. For example, does the question arise because: it is unclear how toapply a specific requirement in the standard; there is an inconsistency within thestandard or with other HKFRS standards; or there is an operational impracticality; etc.
16.FRSC is the convener of HKIISG meetings. All questions submitted will be evaluatedagainst the submission criteria, and referred to IRAP or HKIISG. Relevant questionswill be circulated to HKIISG in advance of each meeting.
17.HKIISG members will share their views on each submission at the meetings.
18.HKIISG members are expected to analyse and evaluate each submission todetermine whether an issue needs to be brought to the attention of the IASB's TRG, orneeds to be included as an area of focus for education activities and seminars.
19.A log of all submissions and their resulting outcome will be maintained. Meetingsummaries of the discussions held will also be prepared.
20.Meetings will be scheduled to take into account the need to allow for an initial periodfor interested parties to become familiar with the Standard and submit questions, andfor a period of stability prior to the mandatory effective date of HKFRS 17.
21.HKIISG meetings may be scheduled both before and after the IASB's TRG meetings,so that members have the opportunity to consider the issues and the outcomes of theTRG meetings, as well as decide if any follow up action is necessary.
22.Members shall serve on a voluntary, unpaid basis.
23.Similar to the IASB’s TRG, the HKIISG will have a limited life (for example, 18 months)
during the transition period to allow a period of calm for insurers to focus on fullimplementation. It is therefore essential for implementation issues to be raised earlyin the transition period.Conflicts of Interest
24.If a member of the HKIISG believes he/she may have a conflict of interest regarding amatter they are consulted on, the member should inform FRSC, who will determinethe future participation of the member about that matter.Page 3 of 3Hong Kong Insurance Implementation Support Group:
Illustration of Operating Procedures