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Insurance Business | 30 Jan 2018, 06:30 PM Agree 0
Fitch Ratings takes a close look at the new international accounting standard for insurance contracts
  • Fariba Norouzi | 09 Mar 2018, 03:22 AM Agree 0
    Role of IFRS 17 on insurance industry?

    By: Fariba Norouzi
    Member of Institute of Internal Auditors (IIA)
    Member of Iranian Institute of Certified Accountants (IICA)

    One of the main key of globalization is insurance role in covering risk and after financial crisis 2008 the insurance industry was effected world crisis and everybody was looking to find a solution to can run insurance industry to be stable! .
    Finally the International Accounting Standards Board (IASB) has reached another milestone with publication of its insurance contracts standard, IFRS 17
    It means that from 1 January 2021, the 450 listed insurers using IFRS standards, who between them have $13000 Billion in assets, will be able to follow a single principles-based standard to account for all the different insurance contracts – including reinsurance contracts – they hold, rather than the complex arrangements they are currently required to follow under IFRS 4.
    Which are key points in IFRS17?
    I. 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.
    2. Separate presentation of underwriting and finance results will provide added transparency about the sources of profits and quality of earnings.
    3. Premium volumes will no longer drive the ‘top line’ as investment components and cash received are no longer considered to be revenue.
    4. Accounting for options and guarantees will be more consistent and transparent.

    Meanwhile 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.
    As well as improved comparability among companies globally, IFRS 17 will also provide investors and other stakeholders with more useful and transparent information and better information about profitability.
    Insurance industry plays a vital role in the global economy; high-quality information to market participants on how insurers perform financially is therefore extremely important.
    IFRS 17 replaces the current myriad of accounting approaches with a single approach that will provide investors and others with comparable and updated information.”
    The new standard is the result of three intensive public consultations in 2007, 2010 and 2013, and takes into consideration the results of more than 600 comment letters, 900-plus meetings with investors, analysts, companies, actuaries, regulators, standard-setters and accounting firms, as well as a number of roundtables and discussion forums held in 18 countries in 2010 and 2013.
    It will require companies to measure insurance contracts at current value. To do so, they will have to use updated estimates and assumptions reflecting the timing of cash flows and any uncertainty relating to insurance contracts.It will also require companies to recognized profits as they deliver insurance services, rather than when they receive premiums.Companies will have to provide information about insurance contract profits that they expect to recognize in the future.
    New standard and information related will provide metrics that can be used to evaluate the performance of insurers and how that performance changes over time.
    Many profession expert says the biggest shake-up in insurance for decades but warns that the insurance industry faces major implementation difficulties over the next three and a half years. implementation transition group, which is currently being set up to give guidance on the standard’s application, has a very important job to do in the run-up to D-day, given the 20 years and compromises it has taken to reach consensus on the way forward.
    The standard also needs to be tested in action. Often when new standards are first issued, people can take different interpretations which converge over time.
    Insurance companies think implementing the standard will take substantial effort and will entail major changes to insurance companies’ actuarial and finance reporting processes, systems and data.
    It is estimated this effort to be higher for life insurers than general insurers. The long-term coverage underpinning life insurance policies, will require a much more granular set of accounting and actuarial data and both insurers and their analysts will need to assess the full impact in terms of telling the performance story of their companies.
    Also key performance indicators and income statements will look significantly different following implementation. In addition that companies should already be working on understanding the impact of different assumptions and approaches and although the effective date for IFRS 17 is 1 January 2021, the IASB says that companies can apply it earlier. However, in order to do so, they will also have to apply IFRS 9, Financial Instruments, and IFRS 15, Revenue from Contracts with Customers.

    • vahshivahshi | 10 Mar 2018, 03:17 AM Agree 0
      her article is so usefull for student and also accountants
  • rakhsh rostam | 09 Mar 2018, 12:49 PM Agree 0
    taht was excellant article
  • omid.shahin | 09 Mar 2018, 12:50 PM Agree 0
    Really nice explanation
  • Tractorsazi | 09 Mar 2018, 12:51 PM Agree 0
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