IFRS 17 – Insurance Contracts was issued by the International Accounting Standards Board (IASB) on 18 May 2017 and shall be applicable with effective date of annual periods beginning on or after 1 January 2021.
ALL ABOUT IFRS 17
IFRS 17 is the first IFRS Standard for insurance contracts.
IFRS 17 will replace IFRS 4 that was on Insurance Contracts, introduced in 2004. As an interim Standard it was meant to limit changes to existing Insurance Accounting practices. IFRS 4 allowed insurers to use different accounting policies to measure similar insurance contracts based in different countries.
In many instances, features of the accounting models used by the industry are inconsistent with the IFRS Standards in the same country thus limiting comparisons with other industry sectors.
IFRS 17 provides consistent principles for all aspects of accounting for insurance industry. It has removed the existing inconsistencies and enabled all the stakeholders to meaningfully compare companies, contracts and industries.
WHO IS AFFECTED?
IFRS 17 applies to insurance contracts. Although IFRS 17 will affect any company that writes insurance contracts, such contracts are generally not written by companies outside of the insurance industry. Most listed insurers use IFRS Standards. The total assets of insurers using IFRS Standards in 2015 was $13 trillion.
IFRS 17 is effective from 1 January 2021. A company can choose to apply IFRS 17 before that date, but only if it also applies IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers.
The IASB will support the implementation of IFRS 17 over the next three and half years.
IFRS 17 requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. This requirement will provide transparent reporting about a company’s financial position and risk.
IFRS 17 requires a company to recognise profits as it delivers insurance services (rather than when it receives premiums) and to provide information about insurance contract profits the company expects to recognise in the future. This information will provide metrics that can be used to evaluate the performance of insurers and how that performance changes over time.