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IFRS, UK GAAP and Solvency II Barnett Waddingham Kim Durniat 15 November 2012 Agenda •  Update on where we are with t...

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IFRS, UK GAAP and Solvency II Barnett Waddingham Kim Durniat

15 November 2012

Agenda •  Update on where we are with these •  What we expect to happen in 2013 and beyond •  Discussion on implications

UK GAAP •  The future of UK GAAP •  New UK GAAP – 1 January 2015

•  Mind the Gap published in January 2012 •  Introduction of SII will render current UK GAAP obsolete •  At time of publishing IFRS was expected after SII but now who knows? •  Short term solution •  Long term solution

•  ED expected in 2013

IFRS - Insurance Contracts •  ED in H1 2013 •  Full text of standard •  Limited questions and do not intend to revisit other aspects after exposure

Core Proposal – Measurement of insurance contract liability Residual margin Risk adjustment

Total liability


Quantifies the unearned profit arising from the contract that the insurer expects to earn as it fulfils the contract


Quantifies the difference between the certain and uncertain liability

Time value of money

•  An adjustment that reflects the time value of money

Cash flows

•  The amounts the insurer expects to collect from premiums and pay out as it acquires, services and settles the contract, estimated using up-to-date information

Changes since July 2010 ED •  Presentation •  Volume information and changes in discount rate

•  Measurement •  Unlocking the residual margin •  Participating contracts

•  Transition

IFRS - Timelines •  H1 2013 Publish targeted exposure draft •  Q4 2013 begin redeliberations •  H2 2014 publish IFRS Proposed effective date 1 January 2018? •  Early adoption permitted and restate comparatives

Where is Solvency II? Some definitions: •  “Omnibus II” – a piece of European legislation that amends the Solvency II directive •  The “Trilogue” – The European Parliament, European Commission and European Council. They must agree Omnibus II •  “Long-Term Guarantees Assessment” (LTGA) – a quantitative impact study carried out by the larger European insurance companies 8

Where is Solvency II? •  28 January 2013: LTGA launched by EIOPA •  31 March 2013: Participants in LTGA to submit information •  14 June 2013: EIOPA to report results of LTGA to the European Commission •  12 July 2013: EC to report to the rest of the trilogue •  10 June 2013: European Parliament vote on Omnibus II 9

Long-Term Guarantees Assessment •  Report balance sheet (Assets, technical provisions, own funds, SCR, MCR) •  13 scenarios in total covering: •  •  •  •  •  •  •  10

Different methods for extrapolating swap rates Different matching adjustments Different counter-cyclical premiums Different transitional measures YE 2011 YE 2009 (“during” the financial crisis) YE 2004 (“normal” market conditions)

Questions •  Which do you think will be first - Solvency II or IFRS? •  Have your firms been focusing on IFRS? Is it on the board’s agenda? •  What will the implications be on data, systems and processes? •  What do you need to be doing now?

Contact us Please contact us: •  Kim Durniat 020 7776 3885 [email protected]