Best’s Briefing: New Accounting Standard IFRS 17 Will Provide Enhanced Reporting
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The new International Financial Reporting Standard (IFRS 17) could provide better insight into underwriting performance and enable comparisons to be drawn between insurers, according to a new A.M. Best briefing.
The Best’s Briefing, “New Accounting Standard IFRS 17 Will Provide Enhanced Reporting,” notes IFRS 17 calculations aim to bring consistency and comparability across the world, and is likely to provide greater granularity. Following a long period of preparation and discussion, the standard was published on 18 May 2017, with an effective date 1 January 2021. However, in A.M. Best’s opinion, this leaves insurers with a relatively short period for preparation as they also have to provide comparative figures for the previous year (2020) and there have already been calls for a postponement to its implementation date.
Although IFRS 17 will impose a basic model that is applicable to all jurisdictions for insurers reporting under IFRS, A.M. Best anticipates there will still be some issues of comparability, especially when the standard is first introduced. There are likely to be some areas of interpretation, such as the determination of discount rates, and the criteria on which segmentation of business will be based. With time, those approaches are expected to converge and help comparability.
Carlos Wong-Fupuy, senior director, A.M. Best, said: “Companies will have to differentiate clearly between insurance and investment profits, which will provide additional key indicators to measure the performance of long-term business. Particular situations where apparently strong business positions are weakened by loss-making product lines will be more easily identifiable. More detailed information can help determine (re)insurers’ enterprise risk management practices. A.M. Best expects added refinement in the way that companies incorporate the enhanced performance data in risk management. If there are any implications on how capital is managed and on dividend policies, this may also have some impact on the way analysts assess risk management.”
A.M. Best states there is unlikely to be an immediate significant impact on rated companies in a post-IFRS 17 world. A.M. Best’s approach, in line with its criteria framework, Best's Credit Rating Methodology (BCRM), allows for adjustments where current accounting standards do not necessarily reflect economic reality. This should minimise the ratings impact from any volatility component exclusively attributable to accounting mismatching.
To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?recor.
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