All standards or changes in standards that have not yet entered into force will be applied by Munich Re for the first time as from the mandatory effective date for entities domiciled in the European Union.
Under the amendment to IAS 1 (rev. 06/2011), Presentation of Financial Statements, Presentation of Items of Other Comprehensive Income, “other comprehensive income” must now be divided into items that will be reclassified to profit or loss at a later date and items that will not. The purpose of this amendment is to improve the presentation of these items and align the approaches under IFRS and US GAAP. The amendments are mandatory for financial years beginning on or after 1 July 2012, and were adopted into EU law in June 2012.
Unless mentioned separately below, the following standards are mandatory for financial years beginning on or after 1 January 2013. Only the amendments published as part of the IFRS Annual Improvement Process and the revised IFRS 9, Financial Instruments, as well as the related changes to the groupspecific standards (IFRS 10, IFRS 11, IFRS 12 and IAS 27) have not yet been adopted into European law. The other standards were adopted in June or December 2012.
IFRS 9 (11/2009 and rev. 10/2010), Financial Instruments, replaces the current requirements of IAS 39 relating to recognition and measurement of financial instru ments. Given its complexity, the overall project has been subdivided into three phases. The new rules in IFRS 9 that have thus far been adopted from the first phase of the project mainly concern the classification and measurement of financial instruments. Under these rules, financial assets will in future be divided into only two primary meas urement categories: amortised cost and fair value through profit or loss. The distinction is to be made on the basis of the reporting entity’s business model and the contractual cash flows of the assets. In addition, for equity instruments there will be the option of measurement at fair value without affecting the income statement, although then it will not be permissible for value changes recognised in other comprehensive income to be subsequently transferred to profit or loss. There also remains the possibility of volun tary measurement at fair value (fair value option). For financial liabilities, there are no changes in the measurement rules except that if the fair value option is applied, value changes attributable to a change in the entity’s credit risk must be recognised without impact on profit or loss in future.
Consolidated income statement
2011 Changes from
as originally adjustments pursuant
€m recognised to IAS 8 in 2011 2011
Gross premiums written 49,572 –120 49,452 1. Earned premiums
Gross 49,134 –120 49,014
Net 47,412 –120 47,292
2. Income from technical interest 5,897 –100 5,797 3. Expenses for claims and benefits
Gross 42,323 –120 42,203
Net 41,034 –120 40,914
5. Technical result 286 –100 186
9. Deduction of income from
technical interest –5,897 100 –5,797
The two other phases of the project are concerned with rules for recognising impair ments and for hedge accounting. While the discussion regarding hedge accounting has practically been concluded and the new rules are to be integrated into IFRS 9 in the short term, the IASB will first be publishing another exposure draft for the rules regard ing recognition of impairments.
Besides this, in November 2012, the IASB published an exposure draft providing for a further change in the new measurement rules. This is designed to make it possible to continue measuring certain debt instruments at fair value without impact on profit or loss, depending on the contractual cash flows and an additionally defined business model that contains an intention to sell.
Originally, IFRS 9 envisaged that the new provisions would be mandatorily effective as from 2013. Since discussions of the still outstanding project phases are taking longer than originally planned, the mandatory effective date of a standard amending IFRS 9 and IFRS 7 (rev. 12/2011) has been deferred to financial years beginning on or after 1 January 2015.
IFRS 10 (05/2011), Consolidated Financial Statements, supersedes the provisions of IAS 27 and SIC 12 and creates a uniform definition for control, irrespective of whether this control is based on company law or on contractual or economic circumstances. There are no longer independent provisions for structured entities (special purpose entities). A situation of control exists when an investor has the ability to direct an in vestee’s relevant activities and is exposed to the returns from those activities. Further more, IFRS 10 addresses issues that have not been dealt with until now, including the regulation that a situation of control exists even if an investor holds less than a majority of the voting rights but regularly has a de facto majority of voting rights at the annual general meetings. The effects of the new standard on Munich Re’s consolidated com panies are currently being reviewed.
IFRS 11 (05/2011), Joint Arrangements, defines joint operations and joint ventures and specifies how they are to be recognised in the balance sheet. The changes compared with IAS 31, Interest in Joint Ventures, mainly concern the elimination of the option of proportionate consolidation for joint ventures, the amended definition of joint control, and the extended scope of application of joint operations. These may now include arrangements structured through a separate vehicle. The elimination of the option of proportionate consolidation will have no impact on Munich Re, as we do not avail our selves of this option and already apply the equity method. The effects of the two other changes are currently being analysed.
IFRS 12 (05/2011), Disclosure of Interests in Other Entities, combines the disclosures regarding facts and circumstances governed by IFRS 10, 11 and IAS 28. The objective of the standard is to provide information on the type and risk of interests in other entities and their implication for the consolidated financial statements. As a consequence, the information provided needs to be more comprehensive than hitherto. In particular, IFRS 12 requires disclosures relating to unconsolidated structured entities, non controlling interests, discretionary judgements and assumptions in evaluating the nature of interests in other entities, as well as detailed information on each significant joint arrangement. The precise extent to which Munich Re is affected by the extended disclosure requirements is currently being examined.
IAS 27 (rev. 05/2011), Separate Financial Statements, now deals only with balance sheet recognition of investments in subsidiaries, joint ventures and associates in separ ate singleentity financial statements in accordance with IFRS, including the relevant
disclosures in the notes. The definition of control, and balance sheet recognition of sub sidiaries in consolidated financial statements is now regulated by IFRS 10. The stand ard has no effect on Munich Re, as the provisions for singleentity financial statements in accordance with IFRS have remained unchanged.
IAS 28 (rev. 05/2011), Investments in Associates and Joint Ventures, specifically includes amendments following from the publication of IFRS 11 and IFRS 12. Among other things, the standard integrates the balance sheet recognition of joint ventures and circumstances previously governed by SIC 13, Jointly Controlled Entities – Non Monetary Contributions by Venturers. Furthermore, investments in associates or joint ventures held by openended investment funds or for unitlinked insurance, for ex ample, are no longer excluded from the standard’s scope of application. Rather, there is now an option to measure these at fair value with impact on profit or loss. The amendments do not have any major implications for Munich Re.
As mandated by the IASB, application of IFRS 10, IFRS 11 and IFRS 12 and the amend ments to IAS 27 and IAS 28 would be mandatory for financial years beginning on or after 1 January 2013. When the standards were adopted into European law, the manda tory effective date was deferred by one year, so that the standards concerned have to be applied for the first time by entities domiciled in the European Union for financial years beginning on or after 1 January 2014; voluntary application before that date is permit ted.
In June 2012, the IASB adopted IFRS Consolidated Financial Statements, Joint Arrangements, and Disclosure of Interests in Other Entities – Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12) (06/2012), which clarifies that the requirement to provide adjusted comparative information on firsttime application is limited to the preceding comparative period only. Insofar as firsttime application does not result in any change in the need to consolidate an entity at the date of firsttime application, no adjusted comparative information for prior periods is necessary. In add ition, the requirement to provide adjusted comparative information for prior periods is removed for unconsolidated structured entities. The effects of the changes on Munich Re are currently being analysed. The amendments are generally mandatory for financial years beginning on or after 1 January 2013. However, we expect that when they are adopted into European law, the mandatory effective date in the European Union will be deferred by one year for these amendments as well.
The IFRS Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) (10/2012) introduces a definition of the term “investment entities” and specifies that such entities are generally excepted from the requirement to consolidate their subsidiaries in future. Rather, they are required to measure them at fair value through profit or loss. The exception from the consolidation requirement does not apply to parents of investment entities that are not themselves investment entities. Besides this, additional disclosure requirements for investment entities are provided for. The amendments, whose appli cation is mandatory for financial years beginning on or after 1 January 2014, are not relevant for Munich Re.
IFRS 13 (05/2011), Fair Value Measurement, provides guidance on measuring items at fair value if another standard prescribes fair value measurement or fair value disclosure in the notes to the financial statements. The standard thus does not determine what items need to be measured at fair value. IFRS 13 revises the definition of fair value, defining it as the price that would be received to sell an asset or paid to transfer a liabil ity in an orderly transaction between market participants at the measurement date. The standard includes detailed information on how to determine the fair value for different types of assets and liabilities. In addition, the standard requires further disclosures in the notes – for instance, the fair value hierarchy thus far only required for financial
instruments under IFRS 7 has now been extended to include all items measured at fair value. On the basis of IFRS 13, we have verified whether Munich Re’s fair value meas urement is in compliance with the new provisions, and we will make any adjustments in measurement necessary. The new disclosures in the notes also need to be imple mented.
The amendments published as part of the IFRS Annual Improvement Process in May 2012 concern IFRS 1, Firsttime Adoption of International Financial Reporting Stand ards, which as such is not relevant for Munich Re, as well as IAS 1, Presentation of Finan cial Statements, IAS 16, Property, Plant and Equipment, IAS 32, Financial Instruments: Presentation, and IAS 34, Interim Financial Reporting, and the knockon change in the interpretation IFRIC 2, Members’ Shares in Cooperative Entities and Similar Instru ments. Only the amendment to IAS 1, Presentation of Financial Statements, is of prac tical significance for Munich Re, and this simplifies the rules currently in place. Where a retrospective change in accounting policies or a retrospective adjustment or realloca tion of items under IAS 8 requires publication of a binding third comparative balance sheet, it is no longer necessary to make the relevant disclosures in the notes.
As a result of the amendments to IAS 19 (rev. 06/2011), Employee Benefits, the option for deferring the recognition of actuarial gains and losses, in particular the “corridor approach”, has been eliminated. These gains and losses must now be recognised in equity with no effect on profit or loss. Furthermore, the past service cost for retroactive changes in a defined benefit plan is to be immediately recognised in the income state ment. The return on plan assets is now to be determined on the basis of the rate used to discount the present value of defined benefit obligations. The administrative costs and taxes payable by the plan are to be deducted from the return. The requirements regarding the asset ceiling have been integrated and further specified. Moreover, add itional disclosures in the notes are required, e.g. analysing pension obligations in terms of their risks and sensitivities for the actuarial assumptions. The amendments will not have any major effects on Munich Re. The extended disclosures in the notes need to be implemented.
The amendments to IAS 32 (rev. 12/2011), Financial Instruments: Presentation – Off- setting Financial Assets and Financial Liabilities, and IFRS 7 (rev. 12/2011), Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities, clar ify some issues in relation to the admissibility of offsetting financial assets and finan cial liabilities. They also require additional disclosures in the notes to the financial statements. These additional disclosures comprise gross and net amounts related to offsetting as well as amounts for existing rights to offset that do not satisfy the offset ting criteria. The new disclosures are mandatory for annual periods beginning on or after 1 January 2013 and the clarifications for annual periods beginning on or after 1 January 2014. We are currently proceeding on the assumption that these changes will have no practical significance for Munich Re.
IFRIC Interpretation 20 (10/2011), Stripping Costs in the Production Phase of a Sur- face Mine, clarifies when production stripping should lead to the recognition of an asset and how that asset should be measured, both initially and in subsequent periods. This interpretation has no practical relevance for Munich Re.