IFRS 17 marks a significant change in how insurance contracts are accounted for and reported in relation to the previous standard, IFRS4, writes JOSEPH INOKOTONG.
THE main objective of IFRS 17 is to provide more consistent and transparent financial reporting for insurance contracts and improve comparability across different insurance companies.
IFRS17, also known as the International Financial Reporting Standard 17, is a set of accounting standards developed by the International Accounting Standards Board (IASB) and related to insurance contracts. The standards originated in May 2017 but only came into force at the beginning of 2023. They represent a significant overhaul of accounting practices around insurance contracts.
Many small and medium-sized insurers have yet to fully understand the standards due to their perceived complexity. However, addressing the challenge head-on, rather than leaving it to the last minute or beyond will help companies adapt more effectively and efficiently. A lack of preparation could lead to needless urgent costs, significant anxiety, and potential compliance risks.
By establishing a single, principles-based accounting model, IFRS17 seeks to address any shortcomings associated with previous standards as financial statements will be more accurate and deliver complete information about the insurance contract. The standard requires these contracts to be measured at fulfilment value to reflect the present value of future cash flows, adjusted for risk and time value.
It also introduces the “contractual service margin” (CSM) concept, which recognises profits over the coverage period. With enhanced disclosure requirements, the standard enables stakeholders to better understand performance, financial position and risks associated with insurance contracts.
IFRS 17 is relevant to a broad range of stakeholders in the insurance industry, including investors, regulators, analysts, and insurance companies. Regulators will use the standards-compliant financial reports to monitor companies, ensuring stability and integrity throughout the insurance sector. The insurance companies must adopt the standards throughout their financial reporting practices. At the same time, analysts can evaluate business performance, look closely at risk exposure, and provide recommendations to investors and stakeholders.
IFRS17 is now mandatory for insurance companies operating within jurisdictions, like the UK, where the standard is now law. Those companies will need to comply with the standards through their financial reporting practices. Until now, companies that comply may have done so voluntarily, based on any transition arrangement established by the national authority.
IFRS17 applies to all insurance contracts (including reinsurance contracts) issued by insurance companies. A broad scope covers various types of contracts, including property and casualty, life insurance, and health insurance.
The standard applies to new and existing insurance contracts, so insurance companies must implement changes to older accounting policies, processes or systems to comply. Through enhanced transparency and consistency in financial reporting, IFRS17 facilitates regulatory oversight and promotes investor confidence. Overall, it seeks to contribute to the stability and integrity of the insurance industry.
Realizing the importance of the IFRS 17, the National Insurance Commission (NAICOM) in collaboration with the Nigerian Insurers Association (NIA) Accounting Technical Committee (ATC) are charting ways on how to ensure it is implemented effectively.
At a one-day interactive session with key stakeholders on IFRS 17 implementation held recently at NEM Insurance Plc Auditorium, the experts discussed and aligned on key areas of the new IFRS 17 standard for a smooth transition and financial reporting.
The event was attended by NAICOM officials, the Nigerian Actuarial Society (NAS), Finance personnel of insurance companies under the umbrella body of Accounting Technical Committee (ATC) of NIA, external auditors, actuaries, and industry consultants.
The Commissioner for Insurance (CFI) and CEO of NAICOM, Olorundare Sunday Thomas appreciated the organizer for the initiatives particularly at a period when the industry is gearing up towards the submission of IFRS 17 compliant audited financial statement to the regulator. He lauded the supportive role-played by Nigeria Actuarial Society (NAS) audit firms and other consultants on financial reporting value chain.
The Director-General of NIA, Mrs. YetundeIlori, in her speech, stressed the importance of collaboration among industry stakeholders most especially at this critical time of implementation of the new standard. She appreciated and encouraged NAICOM to continue in its quest to deepen knowledge, and cooperation with the insurance industry in the overall interest of growth and development.
The Chairman of the Accounting Technical Committee (ATC) of the NIA, Dr. Emmanuel Otitolaiye who is also the Chief Financial Officer at Linkage Assurance Plc, appreciated NAICOM for its unwavering supports to the industry particularly in the areas of providing guidance and encouraging industry-regulator interactions towards effective implementation of the standard. Dr. Otitolaiye also appreciated the NAS, external auditors and other participants for the cooperation and understanding which the industry needs to progress.
The Director, Supervision Directorate, NAICOM, Mrs. Oluwatoyin Charles who presented a paper titled “Navigating the Path to IFRS 17: Transforming Insurance Reporting and Accountability” reaffirmed the Commission’s commitment to facilitating a smooth transition and implementation of the IFRS 17 standard. She said that IFRS 17 is a landmark standard that requires enhanced system architecture and data management, and further stressed that IFRS 17 is a significant accounting standard for insurance contracts that aims to provide more transparent and consistent financial reporting for insurance companies.
“The adoption of IFRS 17 represents a paradigm shift in the accounting standards for insurance contracts, and its implementation has presented the industry with formidable challenges, particularly in relation to the system architecture and data management. The introduction of IFRS 17 has fundamentally transformed the way insurance contracts are accounted for, recognized, measured, presented, and disclosed, introducing a principles-based approach that aims to improve transparency, comparability, and consistency in financial reporting.
“IFRS 17 represents a monumental shift in the landscape of insurance accounting, with its emphasis on providing a comprehensive framework for insurance contract measurement, presentation, and disclosure, IFRS 17 stands as a testament to our unwavering dedication to build trust, instill confidence, and foster sustainable growth in the global insurance sector.
The journey to IFRS 17 has been characterized by diligent collaboration, rigorous analysis, and a steadfast dedication to excellence. The adoption of IFRS 17 necessitates a comprehensive re-evaluation of our accounting practices, requiring us to navigate a path guided by precision, adaptability, and strategic vision.
“This transformative process compels us to converge data, technology, and expertise to foster a culture of continuous improvement, operational efficiency, and informed decision-making. Furthermore, the implementation of IFRS 17 serves as a catalyst for advancing the role of actuaries, accountants, and finance professionals in shaping the future of insurance reporting. It presents an opportunity for us to leverage our collective expertise to drive substantive change, elevate industry standards, and unlock new dimensions of insight and value creation.
“In parallel, the advent of IFRS 17 underscores the imperative of cultivating a robust dialogue on the implications, challenges, and best practices associated with this standard. It beckons us to engage in strategic discourse, knowledge sharing, and collaborative endeavours to enable a seamless transition and optimize the potential benefits of IFRS 17 for our organizations and the industry at large,” she pointed out.
Mrs. Charles, however, noted the challenges that come with the implementation of IFRS 17 standard for insurers including data management, system upgrades, and changes to actuarial and accounting processes.
“In essence, the evolving landscape of insurance reporting embodied by IFRS 17 compels us to embrace innovation, resilience, and a steadfast commitment to excellence. It beckons us to embark on a transformative journey marked by collaboration, adaptability, and strategic foresight, endeavouring to uphold the highest standards of integrity, accountability, and value creation in the realm of insurance accounting,” she added.
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