IFRS 17: Insurance Contracts in UAE
John Varghese, Managing Partner
A slew of new reporting and compliance rules are gripping the globe in this period of globalisation and international trade, prompting a substantial shift in the way insurers do business. One of the most significant and far-reaching revisions in many years will redefine insurance accounting. The present standard, IFRS 4, will be replaced by IFRS 17 beginning in 2023. For insurers, IFRS 17 constitutes a significant reform initiative that extends across accounting and actuarial departments. With multiple workflows and initiatives, it will have an influence on insurers’ procedures, personnel, and technology.
Why IFRS 17?
The first unified accounting standard for the whole insurance industry is IFRS 17. Making it simpler to analyze financial statements released by insurance firms is the goal. Additionally, it will improve the industry’s accounting processes’ compliance with those of other industries.
IFRS 17 introduces unprecedented degrees of openness, providing users with more information than ever before about an insurer’s financial condition. More data on the revenue of new and existing firms will be available to investors.
Significant Impacts of IFRS 17 on today’s Insurers
- The impact of utilizing current market discount rates will vary, but it will almost certainly be considerable, leading to higher volatility in financial performance and equity.
- If premium claims and expenditures are considered, projected cash flow estimates can be more accurate.
- For analysts and users, new views are available. The new International Financial Reporting Standards (IFRS 17) will transform the way analysts analyse and compare firms.
- Only revenue, expenditures, and other insurance-related functions are documented.
- Drives business communication and optimizes financial reporting status
- The manner in which progress is conveyed will vary as a function of new presentation regulations.
- Financial risks and investment income will be provided independently from insurance outcomes in order to provide a comprehensive understanding of profit factors.
As per existing accounting regulations, the assessment of insurance contracts is usually evaluated from previous factual data available at the commencement of the insurance term. IFRS 17 requires a forward-looking assessment based on best-estimate cash flows. It is primarily interested in the revenue generated by portfolios. It lays forth guidelines for locating, evaluating, presenting, and revealing insurance contracts.
- With a primary focus on technology, data, activities, and people, insurers must take advantage of this chance to simplify their business.
- Insurance companies will be able to achieve real economic gains while adhering to proposed laws by using a methodical strategy that blends accounting, actuarial, and reporting activities.
- Insurance companies must devote considerable resources and technological facilities to IFRS 17’s complicated standards in order to fulfil a timeframe that is nearing.
IFRS 17 will strengthen reporting quality, making the insurance industry more invested and enhance collaboration between insurers and investors. Insurers will spend a lot of time and effort in the coming years evaluating, comprehending, and applying the new standard to their insurance contracts and reporting. The new norm will promote worldwide uniformity and enable insurers to compare their policies more easily.
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