GFSC Guidance Note on Financial Reporting Standards for Insurers

GFSC Guidance Note Financial Reporting Standardsfor Insurers Version: 1 Publication Date: 31/03/2025 W www.gfsc.gi

Gibraltar Financial Services Commission 2 Commission Guidance Note on Financial Reporting Standards for Insurers Contents Table of Contents

1. Introduction .................................................................................................................... 3
2. Applicability of the Derogation ......................................................................................... 4

Gibraltar Financial Services Commission 3 Commission Guidance Note on Financial Reporting Standards for Insurers

1. Introduction 1.1 This Guidance Note is addressed to all insurance undertakings1 and reinsurance undertakings2 that report under the Financial Reporting Standard issued by the United Kingdom (‘UK’) Financial Reporting Council, as applied pursuant to the requirements of the Gibraltar Companies Act 2014 (referred to as ‘GFRS’ in this Guidance Note) rather than using UK-adopted international accounting standards (‘IFRS’). Insurance undertakings and reinsurance undertakings are collectively referred to as ‘insurers’ or ‘firms’ within this Guidance Note. 1.2 The Gibraltar Financial Services Commission (‘GFSC’) is publishing this Guidance Note to expand on its general approach as set out in its Approach to Insurance Regulation document.3 By clearly and consistently explaining its views in this area, the GFSC seeks to advance its statutory objectives. 1.3 This Guidance Note is intended to complement existing legislation, policies and guidance and is not intended to conflict with, amend or supersede them. 1.4 Article 9 of the Financial Services (Solvency 2)(Technical Standards) Regulations 20254 (the ‘Solvency 2 Technical Standards’), contains a derogation (‘the derogation’) for firms within scope of the Insurance Companies Regulations which allows them to recognise and value an asset or a liability based on the valuation method it uses for preparing its annual or consolidated financial statements, provided this method meets the conditions set out below. This allows firms the option of recognising and valuing assets and liabilities under GFRS for the purposes of their obligations under the Insurance Companies Regulations if: • GFRS is consistent with regulation 65 of the Insurance Companies Regulations; • GFRS is proportionate to the nature, scale, and complexity inherent in the business of the undertaking; and • the process of valuing the assets and liabilities using UK-adopted international accounting standards (IFRS) would impose costs which are disproportionate with respect to the total administrative expenses of the firm. 1.5 The GFSC expects that where GFRS and IFRS are consistent, in that they apply the same requirements as regards recognition and valuation, the derogation will not apply. In such cases firms will not incur any costs to use IFRS recognition and valuation criteria, since they will already be applying what IFRS would require when reporting under GFRS. 1.6 In order to promote consistency in application of the derogation, this Guidance Note lists those GFRS treatments which the GFSC considers to be consistent with regulation 65 of the Insurance Companies Regulations, in full or in part. 1.7 The derogation relates to Article 9(1) and (2) of the Solvency 2 Technical Standards, but does not affect the application of Articles 10 to 16 except to the extent that these provisions refer back to Article 9 regarding recognition or valuation. Therefore, in addition to Article 9: 1 Financial Services (Insurance Companies) Regulations 2020 (ICRs 2020), regulation 3 2 Ibid. 3 https://www.fsc.gi/index.php?url=2019/05/Approach%20to%20Insurance%20Regulation.pdf 4 https://www.gibraltarlaws.gov.gi/legislations/financial-services-solvency-2-technical-standards￾regulations-2025-7559

Gibraltar Financial Services Commission 4 Commission Guidance Note on Financial Reporting Standards for Insurers Solvency 2 Technical Standards Provision The derogation: Article 10: valuation hierarchy • Applies to the whole of Article 10. Article 14: valuation methods for specific liabilities • Applies to the first sentence of Article 14 (1). [The second sentence of Article 14 (1) reiterates requirement in Regulation 65(2) of the Insurance Companies Regulations, and as such cannot be derogated by the Solvency 2 Technical Standards.] • Does not apply to Article 14 (2). Article 15: deferred tax • Applies to Article 15 (1), but not to Article 15 (2) or (3). 1.8 Any firm that relies on the derogation will still be expected to apply in full the remaining valuation requirements of the Solvency 2 Technical Standards , regardless of whether the GFRS102 provisions are consistent with Regulation 65 of the Insurance Companies Regulations. 1.9 For insurance firms, most of the differences between GFRS and UK-adopted international accounting standards relate only to the level of detail which must be disclosed. Since the derogation addresses recognition and valuation of assets and liabilities rather than their disclosure, it is expected to have a limited effect in Gibraltar. 2. Applicability of the Derogation 2.1 The GFSC’s views on whether the Financial Reporting Standards applicable in Gibraltar (and particularly GFRS 102) are consistent with Regulation 65 of the Insurance Companies Regulations and therefore within the possible scope of the derogation are set out in the table below. 2.2 Where a firm is discussing with its usual supervisory contact whether the conditions for an application of the derogation apply, the GFSC expects that firm to apply this Guidance Note’s conclusions on FRS consistency with Regulation 65 of the Insurance Companies Regulations as regards which provisions of GFRS it may use. Derogation permits use of GFRS? Reason GFRS100 N/A Provisions do not contain valuation methodologies. GFRS101 N/A Provisions do not contain valuation methodologies. GFRS102

Gibraltar Financial Services Commission 5 Commission Guidance Note on Financial Reporting Standards for Insurers Chapters 1-10 N/A Provisions do not contain valuation methodologies. Chapters 11: Basic financial instruments Yes, with amendments Assets: The fair value measurement methodology is consistent with Article 65 of the Insurance Companies Regulations. Liabilities: The fair value measurement methodology is consistent with Regulation 65 of the Insurance Companies Regulations when an item is initially recognised. Subsequently, the second sentence of Article 14 of the Solvency 2 Technical Standards applies; there shall be no valuation adjustment to take account of the change in own credit standing of the insurance or reinsurance undertaking. Chapter 12: Other financial instruments Yes, with amendments The fair value measurement methodology is consistent with Regulation 65 of the Insurance Companies Regulations when an item is initially recognised. Subsequently, the second sentence of Article 14 of the Solvency 2 Technical Standards applies; there shall be no valuation adjustment to take account of the change in own credit standing of the insurance or reinsurance undertaking. Chapter 13: Inventories No Article 16(5) of the Solvency 2 Technical Standards still applies. Chapter 14: Investment in associates No Article 13 of the Solvency 2 Technical Standards still applies. Chapter 15: Investment in joint ventures No Article 13 of the Solvency 2 Technical Standards still applies. Chapter 16: Investment property Yes, for one valuation option Only the fair value model methodology is consistent with Regulation 65 of the Insurance Companies Regulations.

Gibraltar Financial Services Commission 6 Commission Guidance Note on Financial Reporting Standards for Insurers Chapter 17: Property plant and equipment Yes, for one valuation option Only the revaluation model is consistent with Regulation 65 of the Insurance Companies Regulations. Chapter 18: Intangibles other than Goodwill No Article 12 of the Solvency 2 Technical Standards still applies. Chapter 19: Business combinations and Goodwill Yes, in part Business combinations — Acquisition accounting: the fair value valuation is consistent with Regulation 65 of the Insurance Companies Regulations. Goodwill — Article 12 of the Solvency 2 Technical Standards still applies. Chapter 20: Leases No Article 16(4) of the Solvency 2 Technical Standards. Chapter 21: Provisions and contingencies No, because Article 9(4)(d) of the Solvency 2 Technical Standards does not apply. Provisions and contingent assets — provisions consistent with IFRS valuation methodology so using IFRS would not impose any additional costs. Contingent liabilities — Article 11 of the Solvency 2 Technical Standards still applies. Chapter 22: Liabilities and equity No Solvency 2 regulatory capital is not dependent on accounting treatment Chapter 23: Revenue recognition N/A Provisions do not contain valuation methodologies. Chapter 24: Government grants Yes Both the recognition and fair value measurement are consistent with Regulation 65 of the Insurance Companies Regulations. Chapter 25: Borrowing costs No Provisions are based on a cost model so are not consistent with Regulation 65 of the Insurance Companies Regulations. Chapter 26: Share based payments Yes This fair value valuation methodology is consistent with Regulation 65 of the Insurance Companies Regulations.

Gibraltar Financial Services Commission 7 Commission Guidance Note on Financial Reporting Standards for Insurers Chapter 27: Impairment of assets No Provisions are based on a cost model so are not consistent with Regulation 65 of the Insurance Companies Regulations. Chapter 28: Employee benefits Yes The measurement principles for employee benefits are consistent with Regulation 65 of the Insurance Companies Regulations. Chapter 29: Income tax No, because Article 9(4)(d) of the Solvency 2 Technical Standards does not apply. Tax — provisions consistent with IFRS valuation methodology so using IFRS would not impose any additional costs. Deferred tax — Provisions are consistent with IFRS as regards Article 15(1) of the Solvency 2 Technical Standards so using IFRS would not impose disproportionate costs. Article 15(2) and (3) of the Solvency 2 Technical Standards still applies. Chapter 30: Foreign currency translation No, because Article 9(4)(d) of the Solvency 2 Technical Standards does not apply. Provisions consistent with IFRS valuation methodology so using IFRS would not impose any additional costs. Chapter 31: Hyperinflation Yes The figures of current and corresponding prior periods are restated in terms of the measuring unit current at the end of the reporting period, which is consistent with Regulation 65 of the Insurance Companies Regulations. Chapter 32 No, because Article 9(4)(d) of the Solvency 2 Technical Standards does not apply Events after the End of the Reporting Period — Provisions are consistent with IFRS valuation methodology so using IFRS would not impose any additional costs. Chapter 33 N/A Provisions do not contain valuation methodologies. Chapter 34: Specialist Activities

Gibraltar Financial Services Commission 8 Commission Guidance Note on Financial Reporting Standards for Insurers Agriculture Yes, (in part) Fair value less cost to sell is consistent with Regulation 65 of the Insurance Companies Regulations where estimated cost to sell is immaterial. If costs to sell are material, then the adjustment required by Article 16 (7) of the Solvency 2 Technical Standards should be applied. Extraction Activities N/A The GFSC does not expect these provisions to apply to insurance undertakings. Service concession arrangements N/A The GFSC does not expect these provisions to apply to insurance undertakings. Financial Institutions N/A Provisions do not contain valuation methodologies Retirement benefit plans N/A The GFSC does not expect these provisions to apply to insurance undertakings. Heritage assets N/A The GFSC does not expect these provisions to apply to insurance undertakings. Funding commitments In part, with amendments Liabilities — Where the funding commitment is a liability the fair value measurement methodology is consistent with Regulation 65 of the Insurance Companies Regulations at the point the funding commitment is initially recognised. Subsequently, there shall be no valuation adjustment to take account of the change in own credit standing of the insurance or reinsurance undertaking. Contingent liabilities — Where the funding commitment is a contingent liability Article 11 of the Solvency 2 Technical Standards still applies. Income resources from non-exchange transactions Yes The fair value valuation basis is consistent with Regulation 65 of the Insurance Companies Regulations. Public benefit entity combinations N/A The GFSC does not expect these provisions to apply to insurance undertakings.

Gibraltar Financial Services Commission 9 Commission Guidance Note on Financial Reporting Standards for Insurers Public benefit entity concessionary loans N/A The GFSC does not expect these provisions to apply to insurance undertakings. Chapter 35 No This chapter provides transitional provisions from the previous GAAP regime. GFRS 103 No Regulations 66 to 80 of the Insurance Companies Regulations and the Solvency 2 Technical Standards still apply.

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