Insurers maintain push for two-year IFRS 17 delay

Published in: Risk, Regulation, Accounting - tax, UK, Rest of Europe, US - Canada - Bermuda, ROW, IFRS 17

Companies: International Accounting Standards Board, IASB, Association of British Insurers, ABI, Insurance Bureau of Canada, Spanish Association of Insurers and Reinsurers, Unespa, International Actuarial Association, IAA, Willis Towers Watson, Deloitte, Institute and Faculty of Actuaries

The recent decision by the International Accounting Standards Board (IASB) to delay implementation of IFRS 17 and 9 by a year has been described as good news by insurers, but many believe two years is still needed.

The insurance contracts accounting standard IFRS 17 is scheduled to come into force on 1 January 2021 but insurers have criticised the deadline for being too challenging and many trade bodies called for a two-year delay. 

IFRS 9, the accounting standard for financial instruments, took effect this year but insurers have been allowed to postpone it to coincide with IFRS 17. 

At the IASB’s meeting in London this week, board members decided to recommend a one-year delay for both standards, subject to public consultation in 2019. 

Steven Findlay, head of prudential regulation at the Association of British Insurers (ABI), said the proposed one-year deferral “is a step in the right direction” but “does not go far enough” to enable the important technical and operational challenges identified in field testing to be fixed.

He said: “The industry’s call for a two-year delay is more realistic.”

The Insurance Bureau of Canada’s chief economist and head of industry analytics, Nadja Dreff, said: “While a one-year delay would help mitigate some of the operational risk associated with IFRS 17 implementation, the global insurance industry has also identified additional issues or inconsistencies within the standard that the IASB will look to address over the coming months.

“Even with the one-year delay, the industry must maintain the momentum of the project and it still remains a very tight timeline.”

Lonn Potgieter, senior policy adviser at the Association for Savings and Investment South Africa, said: “One needs to balance the timing in terms of the length of period of uncertainty and effort versus the difficulty of meeting the various challenges.

“At this stage it would seem that a one-year delay will allow our members sufficient time to address the various challenges while not prolonging the implementation period too much.”

The Financial Services Council of New Zealand was also among orgnisations calling for a two-year delay.

Richard Klipin, its chief executive, said the New Zealand insurance market welcomes the news but added it’s a complex implementation and improvements are needed to be made. The organisation will continue to push for two years.

“We will keep negotiating alongside our global colleagues and continue to seek a more realistic two-year extension that will be necessary to enable the successful move to IFRS 17 here in New Zealand,” he said.

The Spanish Association of Insurers and Reinsurers (Unespa) described IASB’s announcement as “good news” but maintained that one year is insufficient for the Spanish sector to prepare.

Unespa previously called for a three-year delay, but told InsuranceERM it has since changed its position and now supports a two-year delay in line with other European associations.

 

IASB unlikely to move

Several IASB board members said a one-year delay was the most they would consider, otherwise IFRS 9 – already in use in other sectors – would face an unacceptable delay in adoption.

Martin Edelmann agreed the standard should be delayed by a year “but one year only”.

“One year is appropriate because insurance companies will have to implement IFRS 9 four years after the banking sector,” he said.

Sue Lloyd also supported the one-year deferral and added she would not back a longer timeframe.

She said: “It’s important to keep the length between IFRS 9 and 17. I would not be receptive of any deferral of IFRS 9 by more than one year. That’s why for me a deferral of IFRS 17 of one year is something I can agree to… but I’d be really against the deferral of longer than one year for IFRS 9.” 

Asked to address IASB’s comment to recommend a short delay due to the implications on IFRS 9, Findlay said: “Insurers manage their assets and liabilities together – IFRS 9 and IFRS17 are different sides of the same coin. It makes sense generally to introduce both at the same time – and this should be driven by the time needed to fix and then implement IFRS 17.

“For many UK insurers, IFRS 9 isn’t likely to change their numbers significantly. They already fair-value most of their financial assets.”  

Francesco Nagari, global IFRS insurance leader at Deloitte, described one year as “a reasonable compromise between the two stakeholders’ groups.”

 

Extra time

Masaaki Yoshimura, president of the International Actuarial Association (IAA), said: “It is important for the actuarial profession and all stakeholders, including the insurance industry, that this deferral period is used effectively to consider improvements in the quality of the standard and implement it in a robust manner.”

Kamran Foroughi, a senior director at Willis Towers Watson, said with the additional time, one practical short-term step would be to revisit the project plans and consider what aspects can now change.

“In our experience, this will reduce project risks, enable more contingency time and enable more testing of processes and systems, including the ability to perform and implement improvements resulting from dry runs,” he said.

Martin Noble, general insurance board chair at the Institute and Faculty of Actuaries, said: “The deferral should mean that IFRS 17 planning and implementation can progress with more certainty. It should also help avoid an artificial squeeze on skilled resources for professionals including actuaries, given the demands we are seeing globally.”

 

InsuranceERM is hosting an IFRS 17 conference in February. For more information see https://www.insuranceerm.com/content/events/ifrs-17-conference.html

Cintia Cheong