Philippine Financial Reporting Standard 4

THE current Philippine insurance accounting standard is the Philippine Financial Reporting Standard (PFRS) 4, which was adopted from IFRS 4 (Insurance Contracts) issued by the International Accounting Standards Board in March 2004. IFRS 4 was the very first guidance from the IASB on accounting for insurance contracts. It started in 1997 when the predecessor of the IASB, the International Accounting Standards Committee, embarked on what was then dubbed as the “Insurance Project”. This project was divided into two phases. Phase 1 was completed in 2004 with the issuance of IFRS 4. The second phase would result to the issuance of IFRS 17.

IFRS 4 will be replaced by IFRS 17, which was issued in May 2017 and will take effect on January 1, 2022. IFRS 4 has been amended in 2005 and 2016. Insurance contracts have been intentionally excluded from other IFRS standards such as IFRS 15 (Revenue from Contracts with Customers), IAS 37 (Provisions, Contingent Liabilities and Contingent Assets) and IFRS 9 (Financial Instruments).

PFRS 4 was originally intended to take effect in the Philippines for the 2005 financial statements. IFRS 4 was to apply to annual periods beginning on or after January 1, 2005. However, under Circular Letter No. 37-2005, dated December 19, 2005, the adoption of PFRS 4 was deferred to take effect on January 1, 2006. This marked the first time that a new accounting standard for insurance companies was deferred. 

IFRS 4 was issued as an “interim standard” in 2004. The IASB had always intended to replace IFRS 4.  It was prepared under a constrained time frame. Hence, it was written with the objective of attaining the minimum harmonization. It allowed the continued use of national (local or domestic) standards when accounting for insurance contracts. From an international view point, it means a variety of accounting practices across the globe. Thus, under IFRS 4, there really is no global accounting standard to speak of. Consequently, comparability of insurers across jurisdictions remained a difficulty—a matter that will later be addressed by IFRS 17.  

IFRS 4 was issued, as there was a need to improve disclosures for insurance contracts. There was also a need to improve recognition and measurement practices. IFRS 4 was intended to apply to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds. It does not apply to other assets and liabilities of an insurer, such as financial assets and financial liabilities.

The notable features of IFRS 4 included the following, among others: a) it prohibits provisions for possible claims under contracts not in existence at the reporting date; b) it requires a test for the adequacy of recognized insurance liabilities; c) it requires an impairment test for reinsurance assets (that reinsurance assets are not impaired); d) it requires an insurer to keep insurance liabilities in its statement of financial position (balance sheet) until they are discharged, canceled or expired; e) it prohibits the offsetting of insurance liabilities against related reinsurance assets; f) it provides for measuring insurance liabilities on an undiscounted basis; and g) it provides for measuring contractual rights to future investment management fees at an amount that exceeds their fair value.  

Dennis B. Funa is the current insurance commissioner. Funa was appointed by President Duterte as the new insurance commissioner in December 2016. E-mail: 


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