The impact of IFRS 17 is expected to be greater in some regions—such as those that routinely use historical interest rate information—than in others. In Asia and Europe, for example, embedded value reporting is voluntarily offered by many insurers to provide information on long-term contracts. While the information about the profitability of long-term contracts provided under IFRS 17 will be more comparable than embedded value reporting, moving away from embedded value will be a significant change for investors.
This is according to an article by financial journalist Liz Fisher on the IFRS website in which she takes a look at what the new Standard means for the investor community.
She writes that the insurance sector has long been a special case when it comes to financial reporting. “The complexity of insurance, its long-term nature and the inherent difficulty in identifying ‘revenue’ as any other business would understand it has set it apart—with the result that an insurance company’s financial statements look and feel unlike any other. But that will change in 2021 with the implementation of the Board’s new global Standard, IFRS 17 Insurance Contracts.
“The new Standard represents a seismic change not only for the insurance companies that will use it but for the user community, and particularly for analysts covering the sector across the world. Some compare the scale of the change to the 2005 adoption of IFRS Standards in Europe; insurers’ financial statements and key performance indicators will be radically transformed. ‘I’ve been covering the insurance sector for almost 20 years and it’s by far the biggest change I have seen,’ says Doug Young of Desjardins Capital Markets in Canada.
“While many are expecting a turbulent bedding-in period when the Standard first comes into effect, insurance analysts across the world believe it will make a huge difference to the consistency and comparability of insurance companies.”
Read the full article here in which she also discusses what the trouble is with IFRS 4.