Mary Trussell, KPMG's global lead for insurance accounting change, commented: “With the Board having published its proposed amendments to IFRS 17, we now have a complete picture of what the final standard will look like. For any insurers experiencing project fatigue, the proposed amendments are a wake-up call to assess their progress and reinvigorate their implementation of IFRS 17. For those that have yet to make meaningful progress, consider it the starting gun for a marathon. The amendments are helpful, but implementing IFRS 17 is still a complex and significant undertaking requiring substantial effort.”
Since IFRS 17 was issued in May 2017, the Board has been monitoring and supporting implementation and has learned much about insurers' and other stakeholders' concerns and implementation challenges. The Board has responded by proposing amendments to IFRS 17 in seven important areas to facilitate its implementation, and by proposing that the effective date of IFRS 17 be postponed by one year to 1 January 2022.
Although most other companies applying IFRS Standards were required to begin accounting for their financial assets and financial liabilities under IFRS 9 Financial Instruments in 2018, insurers meeting certain criteria were granted a temporary exemption from applying IFRS 9 that would have expired on 1 January 2021. The Board has proposed to extend that exemption to 1 January 2022, in line with the new proposed effective date of IFRS 17.
Commenting on the proposed amendments, Joachim Kölschbach, KPMG’s global IFRS insurance leader, said: “There’s a lot here for insurers to be pleased about. The extra year would give them much needed time to complete their IFRS 17 implementation projects and the amendments would provide practical solutions to significant challenges that many would have encountered. These include accounting for commissions paid to win insurance business; reflecting the economic realities of insurance contracts that also provide investment services to policyholders; and recognising the impact of reinsuring loss-making business.”
The impacts of the amendments - and of IFRS 17 in general - are not limited to accounting, but also have significant implications for insurers' data and IT systems. Kölschbach continued: “In some of the amended areas of IFRS 17, insurers would avoid some considerable challenges in re-analysing data and modifying their IT systems. But it's crucial for insurers to remember that implementing IFRS 17 will still be a huge challenge requiring changes to the data they gather and their systems, processes and controls.”
The amendments also have significant implications for the banking sector. Kölschbach added: “Banks will also be pleased that the amendments would allow them to continue applying IFRS 9 to certain types of credit cards and loans that also provide insurance coverage. IFRS 17 as originally drafted would have required them to apply insurance accounting to these products. This would have been a major burden for them so soon after updating their systems and processes to comply with IFRS 9's requirements, which became effective only last year.”
When it becomes effective, IFRS 17 will replace IFRS 4 Insurance Contracts - a standard that has allowed insurers to continue using legacy local insurance accounting practices. With this in mind, Trussell added: “Although IFRS 17 represents the biggest accounting change for insurers in most people's working life, the impacts will be felt far beyond accounting - in areas such as actuarial, IT, investor relations and even human resources.”
The Board has requested that insurers and other stakeholders submit their comments on the proposed amendments by 25 September 2019, with a view to finalising the standard in the middle of 2020. Kölschbach said: “IFRS 17’s raison d’être is to deliver greater comparability and transparency in insurers’ financial statements, which is what these amendments aim to provide. It’s important for insurers – as well as investors, analysts and other users of financial information – to assess the impact of the amendments and to relay their views to the Board.”
Trussell concluded: “It’s vital that insurers make good use of the extra year. It’s time for many insurers to step up the pace of their implementation efforts so they can reach the finish line with systems and processes tested and results understood by management and investors.”
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