IFRS 17 Actuarial Science - Part 2
Here we will discuss 3 major questions:
1. What are the benefits of IFRS17?
2. What are the limitations of IFRS 17?
3. Difference between IFRS 17 and IFRS 4?
Ques: How IFRS17 adds value to users'
financial statements?
Ans:
- Transparency - improves the quality of insurers' financial information
- Consistency - consistent and high-quality accounting standard for all insurance contracts across most jurisdictions
- reduces much of the existing diversity in reporting.
- increases comparability in financial statements.
- Better reflection of reality – profit is spread over the contract's life in a series of smaller cash flows – giving more insight into how profit emerges.
- Beneficial for investors - More informative and granular disclosures provide investors proper insight into the entity's business model, exposures and performance.
- Transformation - Opportunity for insurers to transform existing business
Ques: Difference between IFRS 4 and IFRS
17?
Ans:
IFRS 4 |
IFRS17 |
Companies
use national standards when accounting for insurance contracts, resulting in
lack of comparability |
Companies
across all jurisdictions apply consistent accounting for all insurance
contracts, regardless of product |
There is a line item in profit and loss account for
change in liability |
Distinction between “Release in Best Estimate Assumptions” and “Release
of Margins” |
Entities are
free to derive their own interpretations for revenue recognition and
calculation of reserves |
Requires companies
to measure insurance contract on updated estimates and assumptions which reflects
the discount rate and risk adjustment |
Profit recognition at the start of contract |
Insurers need to indicate the expected profit with the CSM and
only recognize the profit when it delivers the insurance service |
Outlines
what should be disclosed regarding methods and processes but provides limited
guidance on how these disclosure requirements should be met. |
More
detailed and granular disclosure |
๐๐ฎ๐๐ฌ๐๐ซ๐ข๐๐ ๐ญ๐จ ๐ฆ๐ฒ ๐๐จ๐ฎ๐๐ฎ๐๐ ๐๐ก๐๐ง๐ง๐๐ฅ ๐ญ๐จ ๐ฅ๐๐๐ซ๐ง ๐๐ฒ๐ญ๐ก๐จ๐ง ๐๐ง๐ ๐๐๐ ๐๐จ๐ซ ๐๐๐ญ๐ฎ๐๐ซ๐ข๐๐ฌ
- Increased balance-sheet volatility - The effect of using current market discount rates will vary, resulting in greater volatility in financial results and equity
- Increase in complexity - Change is happening to different aspects of finance reporting as we are transition to IFRS17
- Cost overruns – Mismanagement of IFRS17 implementation can result in extensive cost overruns to insurers
- Technology - Larger volumes of data at greater granularity will drive complexity of the data architecture which can be challenging during implementation.
- Communication - New disclosure requirements will change the way performance is communicated.
- Principle-based approach - offers a lot of flexibility, but also requires intensive analysis.
- Different jurisdictions have different disclosure
- Overload of information – Existing measures remain important, and now on top of that we have IFRS. Understanding all of them in insurance business is complex.
- Cost of this disclosures - IFRS usually require companies to publish more extensive disclosure information than under local GAAP
- Fundamental mismatch between assets and liabilities - The management of assets and liabilities will be affected by the approach adopted to determine discount rates.
๐๐ฎ๐๐ฌ๐๐ซ๐ข๐๐ ๐ญ๐จ ๐ฆ๐ฒ ๐๐จ๐ฎ๐๐ฎ๐๐ ๐๐ก๐๐ง๐ง๐๐ฅ ๐ญ๐จ ๐ฅ๐๐๐ซ๐ง ๐๐ฒ๐ญ๐ก๐จ๐ง ๐๐ง๐ ๐๐๐ ๐๐จ๐ซ ๐๐๐ญ๐ฎ๐๐ซ๐ข๐๐ฌ
Comments
Post a Comment