Francesco Nagari, global IFRS insurance leader at Deloitte, said: “Today’s publication of IFRS 17 marks a once in a lifetime regulatory change in accounting for insurance policies. The new rules aim to bring greater transparency in the financial reporting of an industry whose accounts have often been labelled as a ‘black box’. A single accounting language for insurers should aid comparability across countries where currently various national practices apply."
“To implement IFRS 17 will take substantial effort. The measurement of insurance liabilities will reflect market interest rates and the impact of policyholders' guaranteed benefits. The revenue from insurance policies will be reported systematically over the coverage service period. The expected profit from the remaining coverage service period will be explicitly reported as a component of the insurance liability.”
Mark McQueen, IFRS 17 accounting lead at Deloitte UK, added: “Deloitte expects that implementing these new IFRS 17 requirements will entail major changes to insurance companies’ actuarial and finance reporting processes, systems and data. This effort will likely generate implementation costs for many insurers as large as those incurred in the European Union for the adoption of the Solvency II regulations - estimated between three and four billion Euros for the EU insurers as a whole.*
“We see this effort to be higher for life insurers than general insurers. The long-term coverage underpinning life insurance policies, together with the more common presence of options and guarantees in life-policies, will require a much more granular set of accounting and actuarial data.”
Alex Bertolotti, global IFRS insurance leader at PwC, commented: “IFRS 17 is the biggest shake up of insurance reporting for decades, impacting all insurers reporting under IFRS and even some other organisations writing insurance contracts such as banks with equity release contracts. The IASB's aim is to provide more transparency and comparability than the current accounting standards. It is, however, complex and the detail of the standard together with the forthcoming guidance over implementation will play a significant role in the ease or otherwise of adoption of the standard."
“One thing is clear, particularly for life insurers - whilst ultimate profits will not change, the emergence of those profits can change significantly. Both insurers and their analysts will need to assess the full impact in terms of telling the performance story of their companies. Key performance indicators and income statements will look significantly different following implementation. There are things firms should be doing now to understand and communicate the impact of different assumptions and approaches, as well as to assess the scale of work and resources required."
“Systems and processes will likely change significantly to accommodate the granularity of data needed to comply. We have already noticed a trend of companies taking the opportunity to revamp and update legacy systems, as part of wider transformation projects, to get a bigger return for their investment.”
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