Keeping the foot on the pedal despite deadline deferral

The insurance industry has long been vocal about the need for a two-year extension to the International Accounting Standards Board’s (IASB’s) proposed 2021 implementation date for International Financial Reporting Standard (IFRS) 17 – the accounting standard for valuing the liability side of insurers’ balance sheets that replaces IFRS 4. Eventually, IASB met them halfway, opting for a 12-month extension – a decision that hasn’t been greeted with universal approval from the sector.

What has been less talked about is IASB’s move at the same time to delay IFRS 9 – which looks at the valuation of financial instruments – for insurers until 2021. In other words, the industry will be able to co-ordinate the implementation of both the asset and liability accounting reform in the same year, a move that William Gibbons, asset-liability management specialist at PwC, says is a major boon to be drawn from IASB’s November announcements.

“The continuing alignment of implementation dates for IFRS 17 and IFRS 9 is a positive because it means insurers don’t have to introduce IFRS 9 one year and then IFRS 17 the next. Insurers can assess the asset and liability implications together.

“It might have been hard for IASB to give an additional year for IFRS 9, as insurance will be the only significant sector the delay applies to. So the delays of both IFRS 17 and IFRS 9 make sense for insurers.”

The insurance sector is the only part of the financial markets to be given a reprieve from IFRS 9, which is pretty much mandatory from January 1, 2019, so does this exemption contradict the IFRS’s mission statement to bring “transparency”, “accountability” and “efficiency” to global financial markets?

“No”, is the general answer from those asked by Risk.net and, while IASB has come under a lot of criticism over IFRS 17, the move to co-ordinate its implementation with IFRS 9 appears well thought-out and should benefit the industry. 

But there are still complaints. IASB has recognised 25 areas of dispute as part of an ongoing dialogue with the European Insurance CFO Forum and time is running out to resolve these. But, even without this clarity, insurers need to continue with their implementation programmes, and consultants warn of the need to heed the lessons learnt from Solvency II implementation. 

One such consultant has some blunt words for insurance risk managers when it comes to IFRS 17 – it’s big and complex, so make use of the lessons from the previous project of that type: Solvency II. 

“The accounting standard was published 20 months ago and, while not all companies started their IFRS 17 programmes quickly, they are all up and running now. But we would suggest insurers don’t use this one-year extension as a means to slow down, and instead use the time wisely to improve the implementation process. 

“There’s always the temptation with a deferral to slow down implementation but that ultimately costs more. There’s lots of evidence of that from Solvency II where the industry downed tools at certain points and total costs started rising. Has the industry learnt those lessons? We will soon see.”

Read more articles from the 2019 IFRS 17 special report