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IFRS 17 (formerly IFRS 4 Phase II)

IFRS 17 (previously IFRS 4 Phase II) - Insurance Contracts was issued in March 2004 and went live January 1 2005. The IAS saw a significant need for improved, more detailed disclosures of insurance contracts and recognition and measurement.

IFRS 17 set a series of new rules and regulations, including:

  • New accounting policies: in order to better report on and document liabilities, the standard issued tests for 1. the adequacy of recognized insurance liabilities 2. impairment for reinsurance assets
  • Changes to accounting policies
  • Re-measuring insurance liabilities
  • Prudence
  • Future investment margins
  • Asset classifications
  • Series of disclosure requirements: including clarity on contracts’ impact on financial statements and more granular, detailed risk information

The next phase, IFRS 17, is expected to go live January 1, 2020. It will impact insurers and insurance companies and require them to fundamentally re-assess how they report on financial results and manage their business. It may even require changes to both strategic financial management processes and the finance operating model.

According to EY, Finance can expect to see changes in the following:

  • Reporting and operating models: IFRS 17 will require companies to re-assess financial reporting and their business management
  • Operational risk management: To meet pressure cooker deadlines, Finance will need to streamline their reporting processes 
  • Re-architecture of key proportions processes: In order to gather the data required to support IFRS 4’s measurements, presentations and disclosure requirements, Finance will need to change operational systems, actuarial models, general ledgers, consolidation, reporting, analysis and performance management systems
  • Communication of results to capital markets: Increased public disclosure, specifically pertaining to risk, risk management and evidence of practice. Plus, new measurements will affect how internal review and profits are reported. 
  • Performance management frameworks: Volume, revenue and profitability metrics will all be changed. Revenue will be reported on an earned basis, excluding investment components.
  • More reliable financial forecasts: In order to contend with more unstable financial results better modelling, forecasting and what-if scenario planning is needed. 
  • Asset and liability management: Insurers need to be able to see the impact and fallout of policies and how they will manifest on the income statement.

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