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Quick take: New accounting rule will deliver greater transparency in insurance sector

Thursday, May 18, 2017 - 08:33

A new and radical international accounting standard for insurance contracts which seeks to make it easier for investors to compare how much insurers earn from policies will have a significant impact to Singapore-based insurance organisations.

Twenty years in the works, the "once in a lifetime" accounting change is expected to affect 450 listed insurers who manage US$13 trillion in assets from January 2021.

The new rule from the International Accounting Standards Board (IASB) introduces a uniform international book keeping standard which makes otherwise opaque national practices more transparent.

Here are some views from experts:

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Market voices on:

Raj Juta, Insurance Sector Leader of Deloitte Southeast Asia:

"IFRS 17 (International Financial Reporting Standards 17) will transform the insurance industry and how analysts go about comparing insurance companies. It will impact what constitutes revenue and profit in an insurance company and it introduces the important concepts of contractual service margin and risk adjustment. The insurers target operating model will change including key processes and systems.

"The impact to Singapore-based insurance organizations, whether subsidiaries of European insurers or domestic insurers, are significant given that, unlike European insurers, Singapore insurers would not be able to leverage their IFRS 17 solution from the technical alignment between IFRS and the new Solvency II regime that went live in 1 January 2016 across the European Union. Singapore insurers will therefore have a different starting point in the absence of similar requirements by Monetary Authority of Singapore (MAS) and need to factor into the cost the ability to report between MAS' risk based capital reporting and the more complex IFRS 17 requirements.

"I also think that obtaining the resources to implement the changes will pose a significant challenge too and as with all major transformations the amount spent on implementation will be significant. Insurance companies doing the implementation too late will be under huge pressure. It will be too much 'learning by doing'."

Francesco Nagari, global IFRS insurance leader at Deloitte:

"Today's publication of IFRS 17 marks a once in a lifetime regulatory change in accounting for insurance policies. The new rules aim to bring greater transparency in the financial reporting of an industry whose accounts have often been labelled as a 'black box'. A single accounting language for insurers should aid comparability across countries where currently various national practices apply.

"To implement IFRS 17 will take substantial effort. The measurement of insurance liabilities will reflect market interest rates and the impact of policyholders' guaranteed benefits. The revenue from insurance policies will be reported systematically over the coverage service period. The expected profit from the remaining coverage service period will be explicitly reported as a component of the insurance liability."

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