IFRS 17 brings transparency and challenges to insurers, investors

The publication of IFRS 17 by the International Accounting Standards Board (IASB) will be a major challenge for insurers and investors, and although it will bring more transparency, investors will need some time to understand the new information in what is arguably already a complicated sector.

IFRS 17, previously referred to as IFRS 4 Phase II, is due to replace the existing IFRS 4 standard from 1 January 2021. The accounting standard was recently published on May 18 by IASB.

According to Willis Towers Watson, “the long-awaited IFRS 17 will usher in a wave of unprecedented change to current insurance accounting practices, fundamentally changing how and what insurance companies in Asia and across the globe have to report.”

Whilst the new standard is said to provide greater transparency, there are concerns that investors will understand the changes when they come into place:

“The big change under IFRS 17 will be more transparency, giving investors a clearer picture of the returns they realistically expect on their investment and the risks to those expected returns. However, it will take some time for investors to understand the new information,” says John Nicholls, senior consultant, Willis Towers Watson.

According to Fitch Ratings, “IFRS 17 aims to improve transparency and comparability among insurers and across jurisdictions. This should ultimately be helpful for investors, but they will first have to get to grips with the new standard and its "day one" restatement effects – complications that may drive some generalist investors away from what is already perceived as a complicated sector.”

However, the adoption of the new international accounting standard will not trigger any immediate rating changes when it comes into force, at least in the short-term, says Fitch Ratings:

“The new international accounting standard for insurance contracts published May 18, will not trigger any immediate rating changes when it comes into force […] New accounting standards have no immediate impact on an insurer's credit profile as they do not change the economic substance of its balance sheet. The assets held and the financial commitments to customers and creditors are unaffected - it is only their presentation in the accounts that changes.”

“In the medium-term accounting standards may influence insurers' business models, which could affect their credit profile. In particular, the timing and profile of profit recognition under an accounting system may make certain products more or less attractive.”

Date

19 May 2017

Channel

Treasury

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