Proposed amendments to the new insurance accounting standard, IFRS 17 Insurance Contracts, published by the International Accounting Standards Board, should “prompt action” from insurers, according to Big Four firm KPMG.
KPMG said the amendments will “ease the efforts of insurers worldwide” to implement a standard that will bring “increased transparency about the profitability of their business, greater comparability, and more insight into their financial health than ever before”.
Mary Trussell, KPMG’s global lead for insurance accounting change, said: “With the board having published its proposed amendments to IFRS 17, we now have a complete picture of what the final standard will look like. For any insurers experiencing project fatigue, the proposed amendments are a wake-up call to assess their progress and reinvigorate their implementation of IFRS 17.
“For those that have yet to make meaningful progress, consider it the starting gun for a marathon. The amendments are helpful, but implementing IFRS 17 is still a complex and significant undertaking requiring substantial effort.”
Although most other companies applying IFRS Standards were required to begin accounting for their financial assets and financial liabilities under IFRS 9 Financial Instruments in 2018, insurers meeting certain criteria were granted a temporary exemption from applying IFRS 9 that would have expired on 1 January 2021.
The standards board has proposed to extend that exemption to 1 January 2022, in line with the new proposed effective date of IFRS 17.
Joachim Kölschbach, KPMG’s global IFRS insurance leader, added: “There’s a lot here for insurers to be pleased about. The extra year would give them much needed time to complete their IFRS 17 implementation projects and the amendments would provide practical solutions to significant challenges that many would have encountered.
“These include accounting for commissions paid to win insurance business; reflecting the economic realities of insurance contracts that also provide investment services to policyholders; and recognising the impact of reinsuring loss-making business.”
The board has requested that insurers and other stakeholders submit their comments on the proposed amendments by 25 September 2019, with a view to finalising the standard in the middle of 2020.