IFRS 17 Insurance Contracts
The majority of insurers are now in the process of implementing process and technology solutions to achieve IFRS 17 (insurance contracts) compliance. In November 2018 the IASB announced a one year delay although most insurers are continuing their programs as before and using the additional time allowed to deliver more effective solutions.
IFRS 17 provides a single accounting standard that will benefit both investors and insurers. It replaces IFRS4 the standard that permitted “a myriad of accounting practices”, according to IASB Chairman Hans Hoogervorst. Over 120 countries comply with IFRS standards with insurers in Asia and Europe most affected, however the US will continue with US GAAP accounting rather than IFRS 17 adoption.
IFRS 17 alters the measurement of profit and equity in insurers’ accounts and affects financial statement presentation. Profits will henceforth be recognised as insurers serve customers, rather than the current practice of earning profits as products are sold. Insurers will need to calculate how cash-flows emerge from contracts over their lifetime and at point of sale and will need to measure the expected profits in the so-called contractual service margin (CSM). Profit calculated at point of sale will be adjusted on a regular basis to account for updated assumptions on risks, interest rates, etc.
Life insurers will find the transition harder than non-life firms, because contracts for one year or less can use a simplified approach whilst contracts greater than one year are obliged to calculate the CSM. IFRS 17 is principles-based and insurers will need to interpret and make judgements on the new rules. The standard will require changes to systems and processes to deal with new calculations and will require a more detailed level of information concerning contracts and will need regular updating to calculate CSM as assumptions change. Insurers with written contracts spanning multiple years will need to review them and calculate the CSM when they were first written.
Following impact assessment insurers will need to decide the system changes that will be needed to achieve compliance. By 2021, insurers should have prepared full IFRS 17 results and familiarised investors and analysts with the new disclosures so that full implementation of the standard is possible in 2022.
The new standard will be complex and there will be differences concerning current accounting in both liability measurement and profit recognition. The financial and operational implications of IFRS 17 implementation will require a fundamental change in insurers’ accounting practices and provide a major challenge for much of the industry. There are, however, opportunities to optimise adoption, both operationally and in terms of financial performance.
The principles underlying the new standard are broadly similar to current practices, however the detailed requirements are markedly different. These changes will re-shape primary statements and change financial statement disclosures and changes to the data gathered and maintained will also be necessary.
A structured approach to conducting your IFRS 17 implementation project will help you overcome the coming challenge and Millennium Consulting is well placed to assist with both design and delivery of new solutions.
Working with specialist technologies such as Aptitude, Legerity, Tagetic, Moodys, SAS and Prophet we provide experienced delivery capabilities in these areas.
Our IFRS Team
Phil Keet - Client Delivery Director
Phil is the IFRS Client Delivery Director at Millennium Consulting. A qualified accountant, Phil supports global companies with the delivery of IFRS compliance technology solutions, across multiple jurisdictions.
Operating collaboratively at C level, Phil has spent the past 25 years working on Finance Transformation and regulatory change programs including Solvency II, IFRS 9, IFRS 15, IFRS 16 and IFRS 17.
Brendan Shaw - Strategic Account Manager
Brendan has 15 years experience working across various industries including Legal, Accountancy and Finance, Executive Search and Selection and latterly IT and Professional Services.
Brendan has experience establishing and managing teams and projects of varying sizes and working with organisations ranging from small commercial clients to large corporate multi-nationals.
Sam Stevenson - Client Relations Executive
Sam is IFRS Customer Relations Executive at Millennium Consulting. He works closely with global insurance companies, deploying new technology and carrying out business transformation activity to meet the demands of IFRS compliance programmes. Sam has 4 years’ experience supporting the needs of FTSE 100 organisations.