The International Accounting Standards Board (IASB) has issued IFRS 17 Insurance Contracts. This first truly international IFRS Standard for insurance contracts will help investors and others better understand insurers’ risk exposure, profitability and financial position.
Just the mention of IFRS 17 may send some of us leaping behind the nearest filing cabinet, fighting off flashbacks of the dark “hurry up and wait” days of pre-Solvency II panic.
Now that the highly anticipated publication is finally here what are the next steps, and what elements should be considered over the coming months and years?
One of the things that the Solvency II journey taught us was that regulation which improves transparency and comparability in financial reporting has the potential to add great value to the insurers who embrace the changes as more than just a box-ticking exercise.
The IASB regulation, due to come into force in 2021, aims to (inter alia):
- Address inconsistencies in accounting treatments across insurers.
- Enhance the comparability of financial reporting among entities, jurisdictions and capital markets.
- Improve the relevance and transparency of financial reports.
- Address areas where up-to-date information and risks associated with insurance contracts are not fully taken into account.
To achieve these aims and fully implement the new regulations, extensive work will be required in many areas of insurance companies.
We will see changes to the liability measure and profit recognition of insurance contracts, which will likely require enhancements to companies’ modelling systems and data storage capabilities.
These changes, along with the reporting and disclosure requirements, will see greater emphasis on the interactions and dependencies between the Finance, Actuarial and Risk teams and therefore the review of resources and efficiencies across each of the departments will be essential.
They say the only thing people can’t get used to is change – and actuaries feel that to be true more than most. However, by introducing efficient, future-proofed processes and systems, IFRS 17 implementation may be the push we need to make changes that are long-lasting and value-adding to insurers and the industry as a whole.
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