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Insurers’ countdown to new financial reporting standards begins | Canadian Insurance
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Insurers’ countdown to new financial reporting standards begins

IFRS 17, which affects solely the insurance industry, must be in place by early 2021

The global insurance industry now has approximately three and a half years to implement new international accounting standards into its financial reporting.

International Financial Reporting Standards (IFRS) 17 is the new standard specifically for the insurance industry that has been brought forward by the International Accounting Standards Board (IASB). Implementation of the recently published standard will be required in January 2021. IFRS 17 is one of a number of current IFRS initiatives that affect companies in multiple industries.

The new standard will require insurance companies to adhere to one globally-accepted method of reporting their financial standing as opposed to the current expectation that insurers can report their earnings based on national standards. The reliance on national standards can lead to varying results even within one company, according to Hans Hoogervorst, chairman of the IASB.

For example, “we know of one insurance company that reports under two national standards. Under one standard, it’s making a profit and under the other standard, it’s [experiencing] a loss and that shows how wildly divergent [national standards can] be,” says Hoogervorst in a video explaining the changes on the IASB’s website.

In addition to investors being able to compare insurers’ financial performance across jurisdictions, the changes could also facilitate merger and acquisition activity, suggests KPMG Canada in an announcement regarding the publication of the standards.

The consulting firm recently released a report on the various IFRS changes that are currently being released. The report states IFRS 17 will change how profit is recognized, key financial metrics and disclosures. It will also require insurers to look at their data management, information technology systems, processes, level of analysis and projections.

One specific example of change is how the standard will affect insurers’ profit recognition calculation. “Historically, insurance companies in Canada have been able to recognize profit as soon as a product is sold,” KPMG’s report states. “There is now a new concept around the contractual service margin that requires insurers to amortize profits over the period in which they deliver their services—a completely new calculation.”

IFRS 17 is one of a number of current IFRS initiatives that affect companies in multiple industries. A summary of the various changes can be found through KPMG Canada’s report, which is available on the company’s website.