Stakeholder in the insurance industry has said the adoption of the International Financial Reporting Standards (IFRS 17) in the nation’s insurance industry would not only bring sanity to the sector but it would enhance the sector’s contribution to the economy.
This was revealed by a Manager at AIICO Insurance Plc, Mayowa Korode, during a training organised for insurance/ Pension journalists in Lagos.
IFRS 17 is a comprehensive standard to account for insurance contracts applicable to companies that prepare financial statements under IFRS. It replaced IFRS 4, which was not a comprehensive standard.
The new standard would provide a single global accounting standard for insurance contracts.
According to him, IFRS 17 is developed to bring consistency to financial reporting around the globe for companies reporting under IFRS 17, and to compare insurance companies to those operating in other sectors of the economy.”
Korode said that its underwriting firm is fully ready for the implementation, adding that the company’s first and second quarters of 2023 reports were done in the IFRS 17 model, as few among the operators in the sector are showing their readiness for the implementation.
Korode noted that the most fundamental element of change that IFRS 17 brings is the “closer alignment of the accounting to the underlying economics of insurance.”
He said AIICO Insurance as a Company is ready for the full implementation of the new standard.
Explaining the existing issues in IFRS 4 and how IFRS 17 addresses problem, he said IFRS 4 has a variety of treatments depending on the type of contract and company; estimates for long-duration contracts are not updated; discount rate based on estimates does not reflect economic risks; lack of discounting for measurement of some contracts and little information on the economic value of embedded options and guarantees
Whereas, according to him, IFRS 17 provides consistent accounting for all insurance contracts by all companies; estimates updated to reflect current market-based information; discount rate reflects characteristics of the cash flows of the contract; measurement of insurance contract reflects time value where significant and measurement reflects information about the full range of possible outcomes.
The Balance Sheet in IFRS 17, he noted, requires a current measurement model, where estimates are re-measured in each reporting period.
The measurement, according to him, is based on the building blocks of discounted, probability-weighted cash flows, a risk adjustment, and a contractual service margin (‘CSM’) representing the unearned profit of the contract.
For the Income Statement, requirements in IFRS 17 align the presentation of revenue with other industries. Investment components are excluded from revenue.
Under IFRS 17, entities have an accounting policy choice to recognize the impact of changes in discount rates in profit or loss or other comprehensive income (‘OCI’) to reduce some volatility in profit or loss.
On Disclosures, he said, IFRS 17 disclosures will be more detailed than required under current reporting frameworks; disclosures will provide additional insight into key judgments and profit emergence, adding that disclosures are designed to allow greater comparability across entities.
