Office of the Superintendent of Financial Institutions
In May 2017, the International Accounting Standards Board (IASB) issued the final version of the IFRS 17 Insurance Contracts Standard. IFRS 17 replaces IFRS 4 and is effective for annual periods beginning on or after January 1, 2021. The Canadian Accounting Standards Board endorsed IFRS 17, which is now incorporated into Part I of the CPA Canada Handbook - Accounting.
The Insurance Companies Act stipulates in the case of federally regulated insurers (FRIs)Footnote 1 that “financial statements shall, except as otherwise specified by the Superintendent, be prepared in accordance with generally accepted accounting principles, the primary source of which is the Handbook of the Canadian Institute of Chartered Accountants.”Footnote 2,Footnote 3 Generally Accepted Accounting Principles for FRIs is effectively International Financial Reporting Standards as issued by the IASB. OSFI may specify additional accounting guidance or disclosure requirements, or require FRIs to use a specific option within an applicable accounting standard. OSFI makes these specifications in situations where there is a prudential need for additional accounting guidance.
To support FRIs in their transition to IFRS 17, OSFI is issuing an advisory regarding:
After reviewing several factors (e.g. consistency across insurers, operational capacity, etc.), OSFI determined that FRIs should not adopt IFRS 17 before its effective date of January 1, 2021.
Disallowing adoption before January 1, 2021 implies that FRIs that are subsidiaries of DTIs with an October 31 year-end will adopt IFRS 17 for annual periods beginning November 1, 2021. OSFI confirms this adoption date having considered the complexity of implementing IFRS 17 and the size of these DTI subsidiaries relative to the regulated DTI. DTI subsidiaries with a December 31 year-end will adopt IFRS 17 on January 1, 2021.
IFRS 17 provides existing insurers applying IFRS 4 the option to account for financial guarantee contracts using either IFRS 17 or IFRS 9 Financial Instruments. To ensure consistency and comparability across the industry, OSFI determined that existing FRIs should continue accounting for these contracts using IFRS 17.
OSFI will communicate any additional reporting requirements during the application process for new entrants after January 1, 2021. This will ensure comparability and consistency in reporting with existing FRIs.
OSFI is requiring FRIs to submit semi-annual reports outlining the progress made in preparation for IFRS 17. This advisory sets out OSFI’s expectations with respect to the contents of such reports.
FRIs are expected to submit semi-annual progress reports to OSFI on their implementation of IFRS 17. The reports will detail the status of the project and any material decisions made.
The first progress report is due no later than September 30, 2018. FRIs should submit subsequent reports semi-annually on or before:
FRIs that are subsidiaries of DTIs are expected to submit a final progress report no later than September 30, 2021.
OSFI expects FRIs to engage their senior management in the IFRS 17 work plan. Senior management should review and approve all material elements of the information provided to OSFI. Progress report information received from the FRIs will be considered confidential and treated accordingly.
The progress reports should include the following:
Project Structure and Resources
OSFI expects FRIs to keep their Lead Supervisor informed of any major changes or risks to the IFRS 17 project plan.
Indicate the status of key milestones of the project plan. For example, indicate if the project is on schedule, ahead of schedule or behind schedule. If behind schedule, indicate the steps being taken to bring the project back on schedule.
When evaluating project status, FRIs should:
Details should be included in the progress report based on the areas identified in section 3 below.
Significant Accounting Impacts
FRIs should provide a summary of the significant changes caused by the difference between IFRS 4 and IFRS 17. OSFI has identified the following accounting policy options affecting the FRI’s financial statements:
The progress report should comment on the above and on any other items that have a significant impact on the FRI’s financial statement balances (mainly on the Statement of Financial Position), recognition, classification, measurement, presentation or disclosure. Each report should provide the status and progress towards decisions made.
FRIs should update their assessment of the IFRS 17 impact on:
Location of Information
The information requested in sections 1 to 4 above may incorporate information by reference (e.g. from a pre-existing internal document). In such cases, FRIs are expected to map the reference to the location where the required information is available to OSFI. If information requested is not available in any given semi-annual period, the FRI’s report to OSFI should indicate when that information will be available.
Required information that has been reported in a previous progress report and that remains unchanged from one reporting period to the next need not be repeated. However, the FRI should indicate that the information in question is unchanged from the previous report.
Has the FRI determined its accounting policies with respect to IFRS 17 including options and actuarial methods associated with?:
Level of Aggregation
Estimate of Future Cash Flows
Contractual Service Margin
Accounting for Financial Guarantee Contracts
Deferred Acquisition Costs
Premium Allocation Approach Measurement
Contracts with Direct Participation Features
Have changes to source systems been examined?
Has the FRI designed and delivered training to staff?
On a best effort basis, has the FRI reviewed and determined the impact of IFRS 17 on the regulatory capital ratio (LICAT or MCT)?
Other items of note for discussion:
Qualitative discussion (if necessary) of project:
FRIs refer to all federally regulated insurers, including Canadian branches of foreign life and property and casualty companies, fraternal benefit societies, regulated insurance holding companies and non-operating insurance companies.
Return to footnote 1
Subsections 331(4) and 887(4) of the Insurance Companies Act.
Return to footnote 2
As of November 1, 2013, the Handbook of the Canadian Institute of Chartered Accountants was renamed to Chartered Professional Accountants Canada Handbook - Accounting.
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For the purposes of this Advisory, DTI refers to banks, foreign bank branches, bank holding companies, federally regulated trust companies, federally regulated loan companies, and cooperative retail associations.
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Instructions for quantitative data will be provided at a later date.
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