LONDON--(BUSINESS WIRE)--Insurance companies’ results have the potential to become more volatile under the latest proposed International Financial Reporting Standards, or IFRS 17, as it introduces several new concepts to the balance sheet and significantly alters earnings patterns, according to a new A.M. Best briefing.
The Best’s Briefing, “IFRS 17—Enhanced Transparency Will Be Worth the Effort for Insurers,” notes that under current standards, insurers may use their jurisdictional accounting rules to report the value of the insurance contracts, which leads to difficulties in analyzing an insurer’s financial position by various stakeholders. IFRS 17 represents efforts to increase insurance accounting consistency and transparency across international boundaries. Insurers at present may discount future cash flows from long-term insurance contracts with discount rates adopted at inception. The IFRS 17 proposal aims to separate an insurer’s underwriting results from the financial results (i.e., non-underwriting, investment-related) that comprise investment income and other financial expenses not related to insurance operations, and would require periodic reassessments of the liabilities using up-to-date discount rates. A.M. Best believes insurers with well-established asset-liability management strategies will be less affected than those who take on greater asset-liability management risk.
The United States is not expected to adopt IFRS 17; however, the impact still is likely to be significant, particularly for investors that may be forced to compare varying accounting results. The effective date of IFRS 17 is currently Jan. 1, 2021; however, companies will have to restate 2020 results under the new standard for comparability.
“The complexity of the systems requirements to adapt to IFRS 17 may result in significant effort to build links across actuarial, finance and accounting systems,” said Carlos Wong-Fupuy, senior director, A.M. Best. “This cannot be understated, as some of the insurers affected by this rule operate globally under varying economic conditions and are already strained by compliance with a number of other regulatory and accounting regimes.”
To access a complimentary copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=275655.
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