IFRS 17: Insurer's future prospects
In this era of a global economy and international commerce, a plethora of new reporting and compliance standards are sweeping the globe, causing a transformation in the way insurers conduct business. For insurance firms, IFRS 17, the new financial reporting standard, is considered a welcome transformation. It establishes a set of new financial reporting accountability criteria for insurance businesses equivalent to those in other sectors.
IFRS 17, will undoubtedly become the most significant shift in insurance accounting regulations in recent years. IFRS 17 is a positive move for many in the sector. It will result in a considerable transformation in the data available to financial statement users. In brief, it will reveal information that already appears to exist in the current insurance accounting sector but is not to all practitioners knowledge, allowing insurers to be more transparent. Also, it will assist in establishing a fairer playing field among insurers worldwide. It will give them a better understanding of the insurer's financial situation.
The new International Financial Reporting Standards (IFRS 17) will have influence on:
- Reporting: Modifications to the P&L and balance sheet, as well as additional components such as cash flows, risk calculation, and CSM.
- Organisation: There will be a lot of contact and collaboration between the actuarial, IT, and finance departments.
- Investors: The adoption of IFRS will alter how the financial statements are presented, analysed, and interpreted by stakeholders.
- IT: Data must be managed at a lower level with deeper information, but systems must operate quickly.
What significance will IFRS 17 developments have on today's insurers?
It will impact profit structures. There will be more openness in terms of profitability, and equity levels will be visible. If investors and stakeholders have a better understanding of an insurer's accurate financial results, they are more likely to change how they report and conduct business.
Here are some of the new features of IFRS 17.
- Only revenue, costs, and other operations related to insurance contracts are recognised
- Projected cash flow predictions can be more exact if premium claims and spending are taken into account
- Streamlining of reporting with less confusion and synchronisation of internal and external perspectives
- Insurance contracts and reinsurance contracts are not the same things
- Gain or loss from contracts of a specific entity is recognised in a broad group
- Enhances business collaboration and financial reporting position improvement
- Gives data by focusing solely on investment income
According to current accounting rules, the valuation of insurance contracts is frequently estimated using historical data and facts accessible at the start of the insurance period. IFRS 17 mandates a future-oriented evaluation based on best-estimate cash flows. It is more concerned with the revenue of portfolios. It specifies rules for identifying, assessing, displaying and disclosing insurance contracts.
The adoption of IFRS 17 will substantially impact financial reporting, particularly by assisting in resolving the current difficulty of various accounting procedures. Insurers will have to evaluate, comprehend, and apply the new standard to their insurance contracts and reporting in the future years, which will take a lot of time and energy. The needed substantial transformation programme will affect more than just the finance and actuarial teams, and its implications will need to be conveyed to various participants.
However, help is at hand. HLB’s IFRS advisers can help you understand the key complexities and application of IFRS 17. More information can be found here.