LAM16060 - SI2022/1165: Other accountancy related issues

Reinsurance

For many entities holding reinsurance contracts, IFRS 17 represents a significant change. Common existing practice is to account for reinsurance contracts held using a ‘mirroring approach’, essentially matching reinsurance contract revenue, costs, assets and liabilities to the underlying insurance contracts. Under IFRS 17, a reinsurance contract is accounted for as a standalone contract, independent of the accounting for the underlying insurance contracts. It is not anticipated that this change will create any major issues for tax, and as such no additional rules have been introduced to deal with the change.

Insurance finance income or expenses

Insurance finance income or expenses, as defined in paragraph 87 of IFRS 17, should not, and are not expected to, be included within the I-E calculation as they represent movements in the value of an insurance contract asset or liability.

Other Comprehensive Income (OCI)

Under IFRS 17, there is an accounting policy choice as to whether to recognise insurance finance income or expenses in full in the income statement or disaggregate them between the income statement and OCI. Accounting entries recognised in OCI are not generally brought into account for tax purposes until they are subsequently recognised (“recycled”) in the income statement.

This means that, in certain limited circumstances, IFRS 17 accounting entries could be taken to OCI and not subsequently recycled to the income statement.

To ensure that amounts are fully recognised for tax a rule analogous to CTA09/S320A was introduced in SI2022/1165/Regulation 12. It ensures that, where an insurance contract ceases to be recognised in accounts prepared under IFRS 17, any amounts remaining in OCI are brought into account for tax. Regulation 12 applies to all entities who report under IFRS 17, including general insurers and non-insurers.