Regulatory Alerts2016-01-01
Circular Letter No. 3 of 2016 on Reclassification of Debt Instruments by Insurance and Reinsurance Companies
The Egyptian Financial Supervisory Authority mandates that insurance and reinsurance companies reclassifying debt instruments from "Financial Assets Available for Sale" to "Financial Investments Held to Maturity" must amortize the associated fair value reserve using the effective interest method over the instrument's remaining life. This amortization must be recognized under the "Net Investment Income" line item in the applicable financial statements. Additionally, companies are required to fully disclose the reasons for the accounting policy change and its quantitative effects on the financial statements in compliance with Egyptian Accounting Standards.
Issued on: 2016/11/2
Circular Letter No. (3)
Regarding the reclassification by insurance and reinsurance companies of debt instruments listed under the "Financial Assets Available for Sale" line item to the "Financial Investments Held to Maturity" line item
With reference to the rules for reclassifying debt instruments (government bonds) classified under "Financial Assets Available for Sale" to the "Financial Investments Held to Maturity" line item to maturity, as stated in the Application Guide for Egyptian Accounting Standards for the Insurance Sector.
The Authority confirms that paragraph B/47 of Section I "Rules for Reclassifying Financial Instruments" of the Application Guide for Egyptian Accounting Standards for the Insurance Sector, issued by Authority Decision No. 70 of 2016, stipulates that an insurance company may, if it wishes to change its investment objective from acquiring debt instruments classified under "Financial Assets Available for Sale" to "Financial Investments Held to Maturity", provided that the conditions for the target line item are met. In that case, the fair value reserve balance of the converted bond, listed in the Statement of Comprehensive Income, shall be amortized using the effective interest method over the remaining life of the financial instrument. The amortization value shall be recognized under the line item "Net Investment Income" in the Income Statement/Revenue and Expense Statements, as applicable.
Furthermore, the company undertaking such reclassification must, in application of paragraph B/364 "General Provisions" of the Application Guide for Egyptian Accounting Standards for the Insurance Sector, disclose the reasons that led to the change in accounting policies and the effects of the change on the financial statements.
Chief of the Central Administration
Head of the Authority
46076
Main Branch: Al-Wadi Al-Aqad Village, Building 45 - B
Km 28, Cairo/Alexandria Desert Road
Giza Governorate, Postal Code: 12577
Telephone: (+202) 25370040
Fax: (+202) 25370041
Email: info@efsa.gov.eg
Website: www.efsa.gov.eg