The new insurance contracts standard – IFRS 17 – brings fundamental changes to international insurance accounting. The new standard brings both benefits and challenges for insurers, who will need to gain an understanding of the accounting changes and the impacts on their businesses.
IFRS 17 will give users of financial statements a whole new perspective. The ways in which analysts interpret and compare companies internationally will change. The standard places insurers reporting under IFRS on a level footing, opening up the ‘black box’ of current insurance accounting.
Our First Impressions: IFRS 17 Insurance Contracts (PDF 1.6MB) will help you assess the impacts and prepare for transition. It explains the key requirements with the use of illustrative examples and features KPMG’s insights.
Our SlideShare presentation provides a high-level summary of the requirements and the possible impacts.
Increased transparency about the profitability of new and in-force business will give users more insight into an insurer’s financial health than ever before.
These have the potential to reduce the cost of capital for leading insurers. Greater comparability could facilitate merger and acquisition activity, encourage greater competition for investment capital and help gain the trust of investors.
At the same time, there are likely to be a number of other effects. For example, there could be greater volatility in financial results and equity due to the use of current market discount rates. Insurers may also need to revisit the design of their products and other strategic decisions, such as investment allocation.
The impact of the new standard will vary significantly between insurance companies. Implementing it will require substantial effort, and new or upgraded systems, processes and controls.
The task will be even more challenging given the long time horizons over which many insurance companies operate and the legacy systems that many still use.
While IFRS 17 represents the biggest accounting change for insurers in many years, the impacts will be felt far beyond accounting, in areas such as finance, actuarial, IT and even the regulatory departments.
IFRS 17 takes effect in January 2021. That may seem a long way off, but the timescale will be a challenge for many. A co-ordinated response will be essential. Finance, Actuarial and IT functions will need to work closely together like never before.
You need to start the implementation process now. Companies should start with an initial impact assessment, then move onto analysing their insurance contracts for product-by-product impacts.
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