New rules set to shake up the global insurance industry
IFRS17 regulations a ‘once in a lifetime’ change that will boost transparency, helping investors and policy holders
New “once in a lifetime” rules standardising the way insurers around the world report their accounts may help them to raise capital from the markets as well as benefitting consumers and investors, according to analysts.
The regulations, called IFRS17, are due to come into force in 2021 and aim to provide greater clarity to investors and analysts, as well as those who have purchased insurance policies.
They were published on Thursday by the International Accounting Standards Board (IASB) and will apply to the 150 jurisdictions around the world that are signed up to the IFRS (International Financial Reporting Standards).
“Every insurer is certain to see an impact on its reported numbers in one way or another. Insurance accounting will never have been so revealing,” said Joachim Kölschbach, KPMG’s global IFRS insurance leader in a statement.
“Investors and analysts will be eagerly awaiting the new figures as they begin to emerge in 2021.”
IFRS 17 rules require all insurers covered by the regulations to produce their accounts in the same way, unlike before where each would follow the rules provided by individual regulators.
At present these can vary significantly. “We know of one company that reports under two standards. Under one it makes a profit, and under the other it makes a loss. That shows how widely divergent they can be,” IASB chairman Hans Hoogervorst said in an introductory statement on the organisation's website.
The regulations will provide greater clarity to investors and policy holders, but they could cost in excess of €4 billion on a global basis, according to Francesco Nagari, global IFRS insurance leader at Deloitte, who described them as a “once in a lifetime regulatory change.”
Hong Kong insurers are likely to be among those most affected by the regulatory changes.
“Because Hong Kong is the regional headquarters for many insurance companies, staff based here will be among those most affected as they will have to oversee the changes in reporting from all the different Asian countries in which they operate,” said Nagari.
In addition to standardising reporting procedures across borders, the new rules also require insurers to present their underwriting and finance results separately.
The extra clarity around the results ought to make it easier for successful companies to raise capital from the markets. Until now, uncertainty about insurers’ publicly announced results has made this more difficult.
Individual consumers may also benefit from the new regulations.
“Under the new rules it will be possible for policy holders to assess how much profit insurance companies are making on their policies,” said Nagari. “This may lead to consumer groups deciding to take action.”