The International Accounting Standards Board (IASB) has issued IFRS 17 Insurance Contracts. IFRS 17 is the first truly international IFRS Standard for insurance contracts It comes into force in 2021 and will require all insurance contracts to be accounted for in a consistent manner, replacing today’s multitude of different approaches. IFRS 17 will help investors and others better understand insurers’ risk exposure, profitability and financial position.
IFRS 17 replaces IFRS 4, which was brought in as an interim Standard in 2004. IFRS 4 has given companies dispensation to carry on accounting for insurance contracts using national accounting standards, resulting in a multitude of different approaches. As a consequence, it is difficult for investors to compare and contrast the financial performance of otherwise similar companies.
IFRS 17 solves the comparison problems created by IFRS 4 by requiring all insurance contracts to be accounted for in a consistent manner, benefiting both investors and insurance companies. Insurance obligations will be accounted for using current values, instead of historical cost. The information will be updated regularly, providing more useful information to users of financial statements.
In a short video, IASB Chairman Hans Hoogervorst provides an overview of the current situation and the problems with today’s accounting for insurance contracts. He also explains how the new Standard will solve these problems, providing investors with better information and enabling them to make comparisons between companies. The video can be found at www.ifrs.org/Features/Pages/IFRS-17-insurance-contracts.aspx