After twenty years of development the IASB published IFRS 17 ‘Insurance Contracts’. This new Standard replaces IFRS 4 which was published in 2004. IFRS 4 was designed to be an interim Standard and therefore allowed entities issuing insurance contracts to carry on accounting for them using policies that had been developed under their previous local accounting standards. This meant that companies continued to use a multitude of different approaches for accounting for insurance contracts, making it difficult to compare and contrast the financial performance of otherwise similar companies.
IFRS 17 - the new approach
IFRS 17 solves the comparison problems created by IFRS 4 by requiring all insurance contracts to be accounted for in a consistent manner, benefiting both investors and insurance companies. Insurance obligations will be accounted for using current values instead of historical cost, ending the practice of using data from when a policy was taken out.
The Standard introduces insurance contract measurement principles requiring:
- current, explicit and unbiased estimates of future cash flows
- discount rates that reflect the characteristics of the contracts’ cash flows
- explicit adjustment for non-financial risk.
Getting to grips with IFRS 17
IFRS 17 rewrites the rulebook for insurance reporting and will transform data, people, technology solutions and investor relations. Over the next three years, we expect the key focus areas for entities to be:
- understanding the financial and operational impacts on transition and for new business
- implementing efficient data collection and storage solutions, and streamlining production processes and IT systems
- developing and explaining new performance measurement and business steering metrics.
This guide is designed to get you ready for this major new Standard. It explains the Standard’s key features and provides insights into their application and impact.
The Standard has an effective date of 1 January 2021 but may be applied earlier (subject to considerations imposed by local legislation). If you have any further questions please get in contact with the global IFRS team or your local member firm.