The new financial instruments standard is part of a sea-change in reporting for insurers.
Now that the IASB has published a completed standard on financial instruments accounting – IFRS 9 Financial Instruments (2014) – the real work for insurance companies is just beginning.
The new standard presents revised guidance on the classification and measurement of financial assets, including a new expected credit loss model for calculating impairment, and supplements the new general hedge accounting requirements published in 2013.
Insurers can expect a sea-change in financial reporting over the next few years as they plan for adoption of new standards on both financial instruments and insurance contracts.
Before insurers reach any conclusions about how they apply IFRS 9, they will want to consider its interaction with the forthcoming insurance contracts standard.
Although the permissible measurement bases for financial assets – amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL) – are similar to IAS 39 Financial Instruments: Recognition and Measurement, the criteria for classification into the appropriate measurement category are significantly different.
IFRS 9 also replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ approach.
IFRS 9 will take effect from 1 January 2018, but preparers can choose to apply it earlier. While the effective date may seem a long way off, insurance companies may benefit from early decisions regarding when and how to transition to IFRS 9 – particularly in terms of evaluating its interaction with the forthcoming insurance contracts standard. An early decision will allow companies to develop an efficient implementation plan and inform their key stakeholders.
Read Accounting for financial instruments is changing: What’s the impact on insurance companies?(PDF 1.79 MB) for more information on how IFRS 9 will affect insurers, and how KPMG can help.
The key aspects to consider are the:
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