What does it mean for you?
The IASB published a new standard, IFRS 17 'Insurance Contracts' in May 2017. The key focus for insurers right now is to identify the changes required to systems, processes and controls and make the appropriate implementation decisions.
IFRS 17 Summary
The IASB published IFRS 17, a new accounting standard for insurance contracts, in May 2017. This standard supersedes IFRS 4 and related interpretations.
The standard has been designed to achieve the goal of a consistent, principle-based accounting standard for insurance contracts.
IFRS 17 requires insurance liabilities to be measured at a current fulfilment value and provides a more uniform measurement and presentation approach for all insurance contracts. The intention is to achieve greater transparency about profitability and enable comparison across the industry.
The effective date for IFRS 17 was originally set for annual reporting periods beginning on or after 1 January 2021, however the IASB have since proposed a one year deferral of the effective date; this is yet to be confirmed.
Early application of IFRS 17 is permitted if both IFRS 15 (Revenue from Contracts with Customers) and IFRS 9 (Financial Instruments) have also been applied.
IFRS 17 will result in fundamental changes to the way organisations evaluate, account for and report on insurance contracts. The impact will be organisation- wide, affecting processes and systems and requiring greater coordination between business functions including finance, actuarial and IT.
What does this mean for New Zealand companies?
Although there is potential for a one year delay to the mandatory effective date of 1 January 2021, companies should still be preparing to operate in the new financial reporting regime. Transition to the new standard will require substantial resources to assess the potential impact and understand amendments required for systems, processes and controls.
The impact will vary between companies depending on current accounting policies and the nature of insurance contracts (expect this to be higher for life insurers than general insurers).
In particular, entities in New Zealand should be currently focused on:
- Assessing the expected financial and operational impacts, identifying gaps and resource requirements for transitioning to the new standard by the deadline.
- Making appropriate implementation decisions.
- Judgements required particularly in relation to accounting policy choices.
- Determining the changes required to systems, processes and controls and planning the design and implementation of these (for example, to aggregate insurance contracts into portfolios and groups, to perform new calculations and to meet the transition requirements).
- Education / training
- Developing a structured approach to the implementation of IFRS 17 to address challenges and maximise opportunities.
- Evaluating the data management impacts of IFRS17, particularly the need to bridge actuary and financial data at a much more granular level and provide auditability of assumptions and inputs.
- Considering the standard’s impact on key metrics, debt covenants and management compensation.
- Identifying additional information that will need to be gathered to make the required disclosures.
How Deloitte can help
Our team are fully across IFRS 17 and its implications for New Zealand companies. We can support you to convert the IFRS17 requirements into practical next steps for your business through:
- Impact analysis – reviewing your current systems, processes and controls to identify gaps.
- Interpretation – providing guidance on the latest global and industry developments.
- Software solutions – for example data tools, systems architecture, valuation tools and ledger solutions.
- Stakeholder communication – supporting written or verbal presentations to executives, boards and other key stakeholders.