Best’s, Briefing

The new International Financial Reporting Standard (IFRS 17) could provide better insight into underwriting performance and enable comparisons to be drawn between insurers, according to a new A.M. Best briefing.

13.09.2018 - 13:28:39

Best’s Briefing: New Accounting Standard IFRS 17 Will Provide Enhanced Reporting

Although IFRS 17 will impose a basic model that is applicable to all jurisdictions for insurers reporting under IFRS, A.M. Best anticipates there will still be some issues of comparability, especially when the standard is first introduced. There are likely to be some areas of interpretation, such as the determination of discount rates, and the criteria on which segmentation of business will be based. With time, those approaches are expected to converge and help comparability.

Carlos Wong-Fupuy, senior director, A.M. Best, said: “Companies will have to differentiate clearly between insurance and investment profits, which will provide additional key indicators to measure the performance of long-term business. Particular situations where apparently strong business positions are weakened by loss-making product lines will be more easily identifiable. More detailed information can help determine (re)insurers’ enterprise risk management practices. A.M. Best expects added refinement in the way that companies incorporate the enhanced performance data in risk management. If there are any implications on how capital is managed and on dividend policies, this may also have some impact on the way analysts assess risk management.”

A.M. Best states there is unlikely to be an immediate significant impact on rated companies in a post-IFRS 17 world. A.M. Best’s approach, in line with its criteria framework, Best's Credit Rating Methodology (BCRM), allows for adjustments where current accounting standards do not necessarily reflect economic reality. This should minimise the ratings impact from any volatility component exclusively attributable to accounting mismatching.

To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=278074.

A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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