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23/12/2015 - EFRAG's Draft Comment letter to the IASB's Exposure Draft ED/2015/11 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

EFRAG has published its draft comment letter on the IASB's Exposure Draft ED/2015/11 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts and seeks constituents' views on the proposals. Comments on the draft comment letter are requested by 20 January 2016.


On 9 December 2015, the IASB issued the Exposure Draft ED/2015/11 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts with a comment period ending on 8 February 2016.

The proposals in the ED are aimed to address the concerns related to the misalignment of the effective dates of IFRS 9 and the new insurance contracts Standard. The IASB proposes:

  • An option that would permit entities that issue contracts within the scope of IFRS 4 to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets (the overlay approach); and
  • An optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of
    IFRS 4.

EFRAG welcomes the IASB proposals. EFRAG assesses that the temporary exemption from applying IFRS 9 is addressing all the concerns relating to the misalignment of IFRS 9 and the new insurance contracts Standard, in contrast to the overlay approach which is addressing only the accounting mismatches. Nevertheless, EFRAG supports both approaches as complementary solutions.

EFRAG considers that the temporary exemption from applying IFRS 9 should be available to all entities that issue material insurance contracts within the scope of IFRS 4 in order to avoid an uneven playing field in the insurance sector. Furthermore, the temporary exemption from applying IFRS 9 should not capture material non-insurance activities, in particular banking activities. Therefore, EFRAG has the view that the temporary exemption from applying IFRS 9 should be available both at and below the reporting entity level.

EFRAG recommends that the temporary exemption from applying IFRS 9 should be based on one of the following approaches:

  • A widened 'predominant activity' criterion which is determined on a basis that is not limited to the issuance of contracts within the scope of IFRS 4. However, it would be set at a higher threshold than proposed by the IASB; or
  • A 'regulated entity' criterion which considers definitions from regulatory sources.

Finally, EFRAG agrees with the expiry date set for the temporary exemption from applying IFRS 9.

EFRAG is facing a diversity of views regarding the temporary exemption from applying IFRS 9 and the overlay approach. Therefore, EFRAG is looking for facts and evidence to support preferences expressed by constituents that will help EFRAG in finalising its comments and proposals to the IASB in as robust a manner as possible.

EFRAG requests comments by 20 January 2016.

EFRAG's draft comment letter can be accessed using the following link: