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16 June 2021

This is the final article in this series.

To conclude our IFRS 17 series, we wanted to pull everything together and discuss the other large standard impact that is likely to occur.

When many insurers think of implementing IFRS 17, they may not recognize there other standards that may also need to be applied—including IFRS 9 elections for assets and liabilities, and potentially IFRS 15 for revenue outside of your insurance contracts.

Application of IFRS 9 has been a requirement for companies’ annual reporting periods beginning on or after Jan. 1, 2018. 

However, to help insurers streamline implementation, the International Accounting Standards Board (IASB) deferred the application of IFRS 9 to come into effect for applicable insurers at the same time as IFRS 17. This allows for the deferral of reporting periods beginning on or after Jan. 1, 2023, assuming they have continued to apply IAS 39.

Many companies with an insurance armor aren’t predominantly considered an insurer will have already implemented IFRS 9, including for their insurance components. That means there’s a vast amount of knowledge surrounding IFRS 9 and its three main components:

  1. Classification and measurement (C&M)
  2. Impairment
  3. Hedge accounting

Some companies may have already implemented IFRS 9 as part of the overlay approach. However, IFRS 17 allows you to revisit the election for the assets to be recognized at amortized cost (with appropriate amortization or Impairment), fair value through profit or loss (FVTPL), or fair value through other comprehensive income (FVOCI). And liabilities whose effect of changes in the discount rate on projected liabilities can be recognized through P&L or OCI.

For those that are going through IFRS 17 and IFRS 9 together for the first time as part of the temporary exemption and deferral approach, several key considerations will be required as you navigate the dual implementation:

  • In-scope assets - Depending on the categorization of the assets held by your organization, several impairment methodologies can be applied, some being more complicated (modeled) than others (simplified, loss rate, or low credit risk).
  • Data for those assets - Where the assets require modeling, you will require significantly larger amounts of data to model the impairment and expected credit loss to be held on the balance sheet (and change through the P&L). This may require that you collect and store credit data not currently used and build models that are cognizant of past, present, and future trends to build out 12-month and lifetime expected credit losses. This requires familiarity with the data model and elements required in a modeling approach.
  • IFRS 17 considerations taken by the IASB - Permitting application of either IFRS 17 or IFRS 9 to some loans, credit cards (or similar), and other contracts allows for a simplified bifurcation and application by insurers allows them to take into consideration those items noted above and potentially avoid implementation costs in doing so.
  • Classification and measurement matters - C&M categorization allows you to dictate the impairment methodology or application of insurance accounting, but also hold the correct assets. A change in asset mix may be considered where differences with investment strategy occur or assets are held that are not valued using FVTPL and FVOCI, resulting in the requirement to calculate impairment.

As the deadline to implement IFRS 17 nears, you need to examine and act on your compliance plans. This will include a cross-functional and holistic approach to the treatment of your data & technology, along with your actuarial and finance functions. No one team can achieve compliance alone, and therefore it becomes extremely important to manage this IFRS 17 transformation effectively.

As you continue on your IFRS 17 journey or look to begin it, make sure that you are taking a holistic approach, as siloed efforts often lead to re-work and lost time. There are lessons from frontrunners that can be applied to help achieve compliance in the most efficient way possible. We, along with our partners, can provide the solutions you need to meet the required IFRS 17 deadlines.

This article was originally published HERE.