2023 is a very important year for the insurance industry: The complex set of rules IFRS 17 will come into force on January 1, 2023, replacing the interim standard IFRS 4 Phase I, which has been in force since 2005. The new standard governs the principles of identification, recognition, measurement, presentation and disclosures for insurance contracts.

Alma will support the implementation of IFRS 17 in the insurance industry. Therefore, Alma will publish short and easy-to-understand articles on IFRS 17 from time to time.

Part 2: Why IFRS 17?

The short answer is: you do it for the analysts.

Each country has its own local accounting regulations. These regulations are based on different principles. These principles differ, for example, in prudence principles, a strong focus on creditor protection or the investor need for a “true and fair view/fair presentation”.

This naturally leads to different presentations of results and also to different results as such from insurance companies.

And thus also to a situation in which transparency and comparability are accompanied by high challenges.

This created a desire for transparency and comparability. In a first step – it was only envisaged as an interim solution from the outset – this was to be done with IFRS 4. At this stage, the focus was on the local financial statements and certain adjustments were made. However, the basic problem of lack of transparency and comparability essentially remained. As it was basically based on the local financial statements, which follow fundamentally different accounting principles.

IFRS 17 breaks away from local financial statements and their individual and different principles. They no longer serve as a basis. Separate financial statements must be prepared from this. Uniform principles are applied to this, the main purpose of which is to increase transparency and comparability:

  • Comparability within a company operating in different countries: These ventures will use consistent principles to value their insurance contracts. Comparability of insurance products or country regions becomes easier.
  • comparability between the undertakings: For example, revenues reflect the insurance coverage offered, excluding the deposit components.