R&C: Could you outline the main reasons behind the introduction of IFRS 17? What impact do you believe it will have on companies?

Anderson: IFRS 17 was introduced by the International Accounting Standards Board (IASB) to bring consistency and increased transparency to insurance accounting. Under IFRS 4, insurers were permitted to use a broad variety of practices which commonly amounted to local generally accepted accounting principles (GAAP) and accounting for similar contracts under different accounting policies, depending on the jurisdiction. Under IFRS 17, which represents the first international accounting model specifically for insurance contracts, insurers are required to apply consistent accounting policies for all insurance contracts which will make it easier to compare results across products, geographies and companies that apply the standard.

Zhang: The reasons behind IFRS 17 are to improve transparency and comparability in the measurement of insurance contracts, ensure consistency in the recognition, as well as in the timing, of profits earned, ensure revenue from insurance servicing and investment income is clearly segregated, and standardise the presentation of financial statements and disclosures. In addition, the IASB has also tried to ensure insurers use updated assumptions and discount rates in the valuation of insurance liabilities – thus continuing to move towards a market-consistent valuation approach. We also see similar themes in the Financial Accounting Standard Board’s (FASB’s) targeted improvements to the accounting for long-duration contracts – that standard is also pushing for updated assumptions, fair value treatments for market risk benefits and more transparency around judgements embedded in financial statements. As regards impact, both standards will have a dramatic impact on accounting policy, financial disclosure, data requirements and exposures held – but, most importantly, the new accounting approach will shed more light on the risks and performance of insurance contracts held.

Apr-Jun 2019 Issue