Further delay to IFRS17 would increase cost for insurers, says IASB

The International Accounting Standards Board (IASB) recognises that any further delay to the implementation date for IFRS17 would result in increased cost for insurers, said IASB board member Darrel Scott who was speaking at the Asian Actuarial Conference in Singapore this afternoon.

The original effective date for IFRS17 of 1 January 2021 had tentatively been postponed by one year to 1 January 2022. And while the big insurers would likely be able to achieve implementation, smaller companies are still struggling thus leading to speculation that further delays could be announced.

“We have seen with Solvency II that cost increases exponentially with each delay and so we hear people saying to not change the implementation date further, but at the same time we have also got smaller companies who are not ready,” said Mr Scott. He added that a decision on any potential delay would be reached by the IASB in the coming months, but hinted that the standard-setting body as well as the regulatory community are keen on the 1 January 2022 implementation date.

Greater risk sharing

In his presentation, Mr Scott explained the salient features of IFRS17 which includes recognising profit over the life of a transaction. “It is a risk-adjusted cash flow model and accounting mechanism to spread the profit over the life of the underlying contract,” he said.

He added the insurer essentially acts as both an underwriter and asset manager, and hence asset-liability management would become more apparent for insurers under IFRS17. The new standard also reflects greater risk sharing between insurers and policyholders, and the increased sharing of risk will ultimately be reflected in product designs moving forward, said Mr Scott.

Adoption

Approximately 82% of jurisdictions in the Asia/Oceania region will require or permit the use of IFRS17, said Mr Scott. Globally, 126 countries will be implementing IFRS17 as an accounting model for all insurance contracts.

At present, most of the jurisdictions are expected to adopt IFRS17 once it becomes effective in 2022, although some jurisdictions are considering a staggered approach for smaller entities in the market, he said.

Further, he added that some jurisdictions may delay IFRS17 in order to align it first with the local regulatory regime. “Some jurisdictions are updating their prudential regulatory standard so they can use IFRS17 as a base, because there are implications for prudential capital as well.”

Source: Asia Insurance Review