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The new standard was published in May last year, with an effective date of 1 January 2021. However, in AM Best’s opinion, this leaves insurers with a relatively short period for preparation as they also have to provide comparative figures for the previous year (2020), and there have already been calls for a postponement to its implementation date.
The current standard, IFRS 4, was always considered to be an interim measure, based on local liability valuation rules. Best explained that IFRS 4 accepts and adopts domestic approaches applied in each jurisdiction, which has led to some global insurance groups producing a consolidation of largely inconsistent valuation results in their reports.
According to Best, several countries in continental Europe maintain prescribed regimes, with highly formulaic approaches including assumptions set by the local regulator, while others such as the UK use a more principles- and market-based approach, with valuation methods closer to IFRS 17’s framework.
It pointed out that IFRS 17 stipulates that insurers differentiate and make a clear segmentation of which groups of contracts are unprofitable, which will mean that analysts will have more granularity in examining the sources of gains and losses when analysing a company’s operating performance. It said that companies will have to differentiate clearly between insurance and investment profits, and particular situations where apparently strong business positions are weakened by loss-making product lines will be more easily identifiable.
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