IFRS 17: A Paradigm Shift in Insurance Accounting

On 16th March 2022, the General Arab Insurance Federation (GAIF) in cooperation with the Society of Actuaries (SOA) hosted the “IFRS 17 Beginners Webcast”. The webcast was sponsored by SHMA Consulting and was an enormous success, with nearly 360 participants attending online.

The 2 hour webcast served as the perfect session for those eager to improve their understanding of IFRS 17 – the new accounting standard for insurance contracts. The webcast was the first of a three-part series with ‘Intermediate’ and ‘Advanced’ webcast sessions planned for the coming months.

IFRS 17, which will be in effect from 1st January 2023, will increase transparency between insurance companies and allow for better comparison of their results. The new accounting standard is based on the idea of ​​calculating insurance contracts on their expected profits or losses for long-term contracts, with the prohibition of any offsetting between profits and losses of different group of contracts. This is intended to enhance the fairness and transparency of the information provided, as well as imposing the General Model (GM) within the standard for measuring liabilities using assumptions to estimate future cash flows. It is then adjusted for bearing the risk of uncertainty along with a Contractual Service Margin (CSM) that represents the expected earnings to be recognized based on the pattern of services.

Mohammad Zeidan, Chief Actuarial Officer, Allianz Saudi Fransi Insurance Company, confirmed that the Saudi Central Bank (SAMA), in its capacity as the supervisory authority over the insurance sector in the Kingdom of Saudi Arabia, has prepared a road map for implementing the new standard at the beginning of 2018 to help companies implement the standard.

Ra’fat Hammad, an expert at the Jordanian Central Bank, explained that this standard has been well received by the regulatory authorities due to the principles of the new standard being consistent with the requirements of control, and among them, an interest in risk management, transparency, and the ability to measure the solvency margin and the ability for companies to fulfill their obligations. He added that the implementation of this new standard is not only a challenge for companies, but also represents a challenge for regulators, who must update the legislative frameworks to meet the requirements of the new standard.

Abdul Moid Ahmed Khan, Director at SHMA Consulting, pointed out that one of the main challenges facing companies is the transfer of data and budgets. He added that the data itself may be a major challenge. He also provided an overview of the impact on life insurance companies due to IFRS-17 implementation and the areas which will have an impact due to IFRS-17, such as IT, HR, internal audit, compliance, risk management, in addition to the actuarial and accounting functions.

All the speakers highlighted the need to benefit from the outputs of the data analysis stage and the importance of selecting information systems appropriate to the requirements of that stage.