Page 1 of 3Our Ref.: C/FRSCSent through electronic mail19 December 2016Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,Forthcoming insurance contracts standard:
November IASB Board tentative decisionsThe 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.The HKICPA is of the view that the forthcoming insurance contracts standard willimprove significantly the quality of financial reporting for the insurance sector if itintroduces new requirements that are principle-based, understandable andimplementable. The HKICPA appreciates the IASB's efforts in working towards thefinalization and publication of the standard over the past several years and its drive tocomplete the standard setting activity in the near future with the publication of itsforthcoming insurance contracts standard.The HKICPA is pleased with the tentative decisions made by the IASB in its Novembermeeting. They appear to have responded to feedback received from participants of theIASB's 2016 field testing. The HKICPA and our stakeholders consider these tentativedecisions a much welcomed step forward to make the forthcoming standard bothunderstandable and implementable.With this letter we invite you to consider two key areas as you finalise the drafting ofthe forthcoming standard and that relate to your recent tentative decisions.Level of aggregation for mutualised contracts versus non-mutualised contractsGiven the IASB's tentative decisions on mutualised contracts, the HKICPA and ourstakeholders would like to invite the IASB to reflect on what is the fundamentaleconomic difference between mutualised contracts and non-mutualised contracts whenit comes to accounting for changes in future cash flows and the determination ofwhether an insurer has onerous contracts.The HKICPA understands that the policyholders’ rights and obligations arising frommutualised contracts and non-mutualised contracts may not be the same, but insurerswould assemble portfolios for both types of these contracts through the same poolingof risks approach. Generally, this pooling of risks approach is not limited to twelvemonths and would be more fluid, depending on the duration of the contract portfolios.Based on this fact we would like to suggest that the presence of mutualisation clausesPage 2 of 3in the contract is not the relevant conceptual basis to conclude on this criticalaccounting requirement. In fact, the HKICPA and our stakeholders view the samearguments articulated for mutualised contracts in paragraphs 36-39 of the November2016 Paper 2C as equally valid for non-mutualised contracts which are pooled togetherby the insurer and are subject to similar risks.Additionally, in issue 10 of its November 2016 Paper 2G, the IASB tentatively decidedto add guidance on how to reflect mutualisation in determining the cash flows of agroup and the implications on the level of aggregation. The HKICPA would hope tohave the opportunity to comment on a fatal flaw draft of the standard that reflects theadditional guidance.Meaning of contractual terms in the scope of the variable fee approachThe HKICPA is supportive of the IASB's tentative decision relating to issue 12 of itsNovember 2016 Paper 2G where it clarified that if a 'participating contract' creates aconstructive obligation that is enforceable, that contract would meet the first criterion ofthe variable fee approach definition.The HKICPA is also supportive of the guidance that the notion of “enforceable” shouldbe consistent with the requirements in paragraph 10 of IFRS 15 Revenue fromcontracts with customers. Many Hong Kong 'participating contracts' do not containexplicit contractual terms that stipulate that the policyholder participates in a share of aclearly identified pool of underlying items although the Hong Kong regulator may haveimposed similar requirements via regulatory guidance which would be enforceable ifnot complied with.The HKICPA intends to encourage insurance companies in Hong Kong to carefullyassess, from a legal and regulatory perspective, the enforceability of their obligations inthe absence of explicit contractual terms to make their policyholders participate in aclearly defined pool of underlying items.Implementation support post-issuance of the standardThe HKICPA notes that only in special cases, such as if a new standard introducesmany new concepts, would the IASB form a Transition Resource Group ("TRG"). TheHKICPA considers that the forthcoming standard meets this special case status as itrepresents a fundamental change to current practice for many insurers in differentjurisdictions. Insurers in these jurisdictions are therefore expected to have significantimplementation implications, including but not limited to substantial investment in newsystems being necessary.To ensure that there is limited diversity in the application of the forthcoming standard,and to facilitate a smooth implementation process; the HKICPA strongly recommendsthat the IASB forms a time-limited TRG. The HKICPA believes that forming a TRG willprovide a useful support to all insurers and will inform the IASB on any implementationissues on a timely basis. The reason for the time limitation (e.g. one year) on the TRGwork is so that any support or clarifications arising from the TRG discussion can beproperly incorporated into the first year of the implementation period.The HKICPA and our stakeholders would be very grateful if you would action the pointsmade above before finalising the forthcoming standard.Page 3 of 3If you have any questions regarding the matters raised in this letter, please contact me,or Kam Leung (kamleung@hkicpa.org.hk), Associate Director of our Standard SettingDepartment.Yours sincerely,Christina NgDirector, Standard Setting Department
Letter to IASB Chairman on IASB Forthcoming insurance contracts standard: November IASB Board tentative decisions
下载原件Page 1 of 3Our Ref.: C/FRSCSent through electronic mail19 December 2016Mr Hans HoogervorstInternational Accounting Standards Board30 Cannon StreetLondon EC4M 6XHUnited KingdomDear Hans,Forthcoming insurance contracts standard:
November IASB Board tentative decisionsThe 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.The HKICPA is of the view that the forthcoming insurance contracts standard willimprove significantly the quality of financial reporting for the insurance sector if itintroduces new requirements that are principle-based, understandable andimplementable. The HKICPA appreciates the IASB's efforts in working towards thefinalization and publication of the standard over the past several years and its drive tocomplete the standard setting activity in the near future with the publication of itsforthcoming insurance contracts standard.The HKICPA is pleased with the tentative decisions made by the IASB in its Novembermeeting. They appear to have responded to feedback received from participants of theIASB's 2016 field testing. The HKICPA and our stakeholders consider these tentativedecisions a much welcomed step forward to make the forthcoming standard bothunderstandable and implementable.With this letter we invite you to consider two key areas as you finalise the drafting ofthe forthcoming standard and that relate to your recent tentative decisions.Level of aggregation for mutualised contracts versus non-mutualised contractsGiven the IASB's tentative decisions on mutualised contracts, the HKICPA and ourstakeholders would like to invite the IASB to reflect on what is the fundamentaleconomic difference between mutualised contracts and non-mutualised contracts whenit comes to accounting for changes in future cash flows and the determination ofwhether an insurer has onerous contracts.The HKICPA understands that the policyholders’ rights and obligations arising frommutualised contracts and non-mutualised contracts may not be the same, but insurerswould assemble portfolios for both types of these contracts through the same poolingof risks approach. Generally, this pooling of risks approach is not limited to twelvemonths and would be more fluid, depending on the duration of the contract portfolios.Based on this fact we would like to suggest that the presence of mutualisation clausesPage 2 of 3in the contract is not the relevant conceptual basis to conclude on this criticalaccounting requirement. In fact, the HKICPA and our stakeholders view the samearguments articulated for mutualised contracts in paragraphs 36-39 of the November2016 Paper 2C as equally valid for non-mutualised contracts which are pooled togetherby the insurer and are subject to similar risks.Additionally, in issue 10 of its November 2016 Paper 2G, the IASB tentatively decidedto add guidance on how to reflect mutualisation in determining the cash flows of agroup and the implications on the level of aggregation. The HKICPA would hope tohave the opportunity to comment on a fatal flaw draft of the standard that reflects theadditional guidance.Meaning of contractual terms in the scope of the variable fee approachThe HKICPA is supportive of the IASB's tentative decision relating to issue 12 of itsNovember 2016 Paper 2G where it clarified that if a 'participating contract' creates aconstructive obligation that is enforceable, that contract would meet the first criterion ofthe variable fee approach definition.The HKICPA is also supportive of the guidance that the notion of “enforceable” shouldbe consistent with the requirements in paragraph 10 of IFRS 15 Revenue fromcontracts with customers. Many Hong Kong 'participating contracts' do not containexplicit contractual terms that stipulate that the policyholder participates in a share of aclearly identified pool of underlying items although the Hong Kong regulator may haveimposed similar requirements via regulatory guidance which would be enforceable ifnot complied with.The HKICPA intends to encourage insurance companies in Hong Kong to carefullyassess, from a legal and regulatory perspective, the enforceability of their obligations inthe absence of explicit contractual terms to make their policyholders participate in aclearly defined pool of underlying items.Implementation support post-issuance of the standardThe HKICPA notes that only in special cases, such as if a new standard introducesmany new concepts, would the IASB form a Transition Resource Group ("TRG"). TheHKICPA considers that the forthcoming standard meets this special case status as itrepresents a fundamental change to current practice for many insurers in differentjurisdictions. Insurers in these jurisdictions are therefore expected to have significantimplementation implications, including but not limited to substantial investment in newsystems being necessary.To ensure that there is limited diversity in the application of the forthcoming standard,and to facilitate a smooth implementation process; the HKICPA strongly recommendsthat the IASB forms a time-limited TRG. The HKICPA believes that forming a TRG willprovide a useful support to all insurers and will inform the IASB on any implementationissues on a timely basis. The reason for the time limitation (e.g. one year) on the TRGwork is so that any support or clarifications arising from the TRG discussion can beproperly incorporated into the first year of the implementation period.The HKICPA and our stakeholders would be very grateful if you would action the pointsmade above before finalising the forthcoming standard.Page 3 of 3If you have any questions regarding the matters raised in this letter, please contact me,or Kam Leung (kamleung@hkicpa.org.hk), Associate Director of our Standard SettingDepartment.Yours sincerely,Christina NgDirector, Standard Setting Department