By Jason Contant | Canadian Underwriter | September 22, 2021<\/p>\n
Learning how to \u201cspeak IFRS 17\u201d will be an essential skill for insurers for both ongoing effective governance and communicating business performance to stakeholders, a partner at PwC Canada said.<\/p>\n
The changes in the upcoming insurance accounting standard can significantly impact a number of key performance indicators (KPIs) that are widely used today for managing the business, PwC partner Owen Thomas wrote in an article published in MSA Research\u2019s Quarterly Outlook Report for Q2 2021, released Friday. This is particularly true for KPIs based on today\u2019s measures of premiums, claims and expenses such as loss ratios and combined ratios, Thomas wrote in the article Speaking IFRS 17.<\/p>\n
The international financial reporting standard is set to come into effect Jan. 1, 2023, following a one-year transition period beginning in January.<\/p>\n
As well as new concepts to learn in IFRS 17, insurers will also have to adopt to a number of familiar items no longer being included within the financial statements. For example, there will no longer be information on premiums written or earned as part of the IFRS statements. This has been replaced with \u201cinsurance revenue\u201d in IFRS 17. In many cases, this will be similar to gross earned premium calculated under today\u2019s requirements for short-duration property and casualty contracts.<\/p>\n
\u201cHowever, there will be other cases where this will be different, including for longer-duration contracts (such as title and life insurance) and for acquired business, where the insurance revenue numbers could differ significantly from what is used today,\u201d Thomas said.<\/p>\n
In addition to getting familiar with a new format for the income statement that is now split into an \u201cinsurance result\u201d and an \u201cinvestment result,\u201d you\u2019ll also need to look out for changes to reinsurance held (previously referred as reinsurance ceded) and the effects of discounting (and changes in discount rates) which are measured and presented differently under the IFRS 17 requirements, Thomas advised.<\/p>\n
And while measures like loss ratios and combined ratios can no longer be calculated directly from the financial statements, insurers will need to decide which of their existing KPIs will be kept in their current form, and which ones will need to evolve to reflect the IFRS 17 changes.<\/p>\n
\u201cFor example, despite no longer being part of the IFRS financial statements, it\u2019s widely expected that premiums written will continue to be an important KPI for measuring business volumes and growth,\u201d Thomas wrote. \u201cFor KPIs that relate to profitability, insurers may decide, over time, to move to measures that are calculated from the equivalent revenue and expenses amounts under IFRS 17, or else have to maintain the costs of reconciliations to the old formats indefinitely.\u201d<\/p>\n
For public companies, there are also additional constraints around the use of non-GAAP (generally accepted accounting principles) measures which will become more difficult to reconcile to the financial statements in many cases, said Thomas.<\/p>\n
In the near-term, it\u2019s likely that insurers will want to see both old and new measures in order to understand the impacts and for assessing performance. \u201cAny changes to these measures will need to be carefully understood and communicated to stakeholders to avoid surprises.\u201d<\/p>\n
In addition, the impact of any changes to performance measures on an insurer\u2019s internal processes such as forecasts, project appraisals and compensation plans, will need to be assessed and updated as needed.<\/p>\n
\u201cGiven the broad impacts on understanding, assessing and communicating performance under the new requirements, now is the time for insurance executives and board members to get upskilled so you can \u2018speak IFRS 17\u2019 with confidence going into 2023 and beyond,\u201d Thomas concluded.<\/p>\n","protected":false},"excerpt":{"rendered":"
By Jason Contant | Canadian Underwriter | September 22, 2021 Learning how to \u201cspeak IFRS 17\u201d will be an essential skill for insurers for both ongoing effective governance and communicating business performance to stakeholders, a partner at PwC Canada said.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"off","neve_meta_content_width":70,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[5,13,17,20,3],"tags":[],"class_list":["post-795","post","type-post","status-publish","format-standard","hentry","category-global","category-ifrs17","category-ifrs17-resource","category-ifrs17-online","category-news"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/insurance.vincent-chen.com\/en\/wp-json\/wp\/v2\/posts\/795","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/insurance.vincent-chen.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/insurance.vincent-chen.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/insurance.vincent-chen.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/insurance.vincent-chen.com\/en\/wp-json\/wp\/v2\/comments?post=795"}],"version-history":[{"count":1,"href":"https:\/\/insurance.vincent-chen.com\/en\/wp-json\/wp\/v2\/posts\/795\/revisions"}],"predecessor-version":[{"id":796,"href":"https:\/\/insurance.vincent-chen.com\/en\/wp-json\/wp\/v2\/posts\/795\/revisions\/796"}],"wp:attachment":[{"href":"https:\/\/insurance.vincent-chen.com\/en\/wp-json\/wp\/v2\/media?parent=795"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/insurance.vincent-chen.com\/en\/wp-json\/wp\/v2\/categories?post=795"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/insurance.vincent-chen.com\/en\/wp-json\/wp\/v2\/tags?post=795"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}