IFRS 17 will transform insurance accounting but won't change insurers' underlying economic position, said Helena Kingsley-Tomkins, the AVP-Analyst at Moody's recently.
"As we already look beyond reported figures to focus on the underlying economic picture, we don't expect IFRS 17 to alter our view of insurers' creditworthiness," she noted.
The standard's effective date has been delayed a year to Jan 1, 2022 by the International Accounting Standards Board (IASB), as insurers and reinsurers said they need more time to complete the implementation.
For some insurers, IFRS 17 will meaningfully alter reported equity and/or profit recognition patterns, the analyst added.
The financial impact will largely depend on insurers' business mix and current accounting standards, she pointed out.
Annuity writers and traditional life insurers with exposure to policies carrying high guaranteed rates of return, particularly in Germany, Korea and Taiwan, which are reserved using historic discount rates, are most likely to report a decline in equity, Moody's said.
IFRS 17 is unlikely to affect the regulatory capital of insurers operating under regimes that tailor capital requirements to underlying risks, such as Solvency II in Europe, according to the firm.
“But in other markets, it could expose weak balance sheets and may trigger capital enhancement measures,” Kingsley-Tomkins noted. “This has already occurred in the Korean life insurance sector.
In a few exceptional cases, an unexpected or outsized drop in reported equity relative to peers would increase leverage, potentially harming investor perception, and constraining financial flexibility, she added.
