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RAPPORT

IFRS 17: what to do now

Implications for European Insurers

IFRS 17 is the most significant change to European insurance accounting requirements in 20 years, requiring insurers to entirely overhaul their financial statements.

The International Accounting Standard Board (IASB or Board) issued the new Insurance Accounting Standard, IFRS 17 Insurance Contracts (the Standard) on 18 May 2017. The Standard will have to be applied for reporting periods starting on or after 1 January 2021.

This standard will represent the most significant change to European insurance accounting requirements in 20 years, requiring insurers to entirely overhaul their financial statements. Given the scale of this change, investors and other stakeholders will want to understand the likely impact as early as possible (see Exhibit 1). The Standard uses three measurement approaches:

1. General model or Building Block Approach (BBA) — for most long-term contracts
2. Premium Allocation Approach (PAA) — for most short-term contracts (optional)
3. Variable Fee Approach (VFA) — for contracts with direct participation features

The principles underlying these measurement approaches result in a fundamental change to current practice, particularly for longduration contracts. The requirements are markedly different to existing accounting in a number of critical aspects that will:

  • Change profit emergence patterns 
  • Increase the frequency of loss recognition
  • Add complexity to valuation processes, data requirements, assumption setting.

The requirements for forecasting results of the new metric is even more challenging than analyzing current results

The IASB decided on a mandatory effective date of 1 January 2021 for the new standard. In the coming years, insurers will need to interpret and apply the requirements to their insurance contracts — a process involving significant time and effort. The major change program required will extend beyond finance and actuarial teams and its impacts will need to be communicated to a broad range of internal and external stakeholders.

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