Deloitte urges insurers to begin IFRS planning

Deloitte has called on insurers to begin working on the International Accounting Standards Board proposals for a single International Financial Reporting Standard for insurance contracts.

The proposal is part of an exposure draft, published today, that could apply to all contract types on a consistent basis.

Commenting on the proposals, Francesco Nagari, global IFRS insurance leader at Deloitte, said: "The publication of the exposure draft is a landmark stage in the IASB's 13-year project to develop a consistent standard for insurance accounting and will have a significant impact on insurers across the world.

"Under the proposed IFRS, all insurance contracts, both life and non-life, will be measured using the same building blocks based on discounted probability-weighted best estimate cash flows.

"Insurers have been previously permitted to use very different methods to report insurance contracts, based on a variety of national practices developed under the previous IFRS. This has greatly reduced the comparability of insurers' financial reports, penalising them when they accessed capital markets with a higher cost of capital than most other industries."

Mr Nagari added: "I would encourage insurers to start planning for the introduction of the new IFRS. Developing the building blocks will require many insurers to reorganise their data in different ways or develop new valuation models. A successful operational implementation of the new standard will require consideration of the impact on projects in other developing areas.

"In particular, Solvency II within the European Union is based on a valuation model for insurance liabilities that is very similar to the one preferred by the IASB, and the Solvency II regulations require a reconciliation between the IFRS and the Solvency II valuations to be published every year."

Joel Osnoss, global IFRS leader, Deloitte Touche Tohmatsu added: "Given the increased adoption of IFRS worldwide, it is no exaggeration to suggest that this proposed accounting standard would have a global impact and could fundamentally change the way insurance companies measure, report, and evaluate performance of their insurance contracts.

"Many insurance companies would experience a significant amount of change in their financial statements and would need to modify their information systems, risk management programs, and possibly even product design.

"There would also be a need for education of stakeholders, including shareholders, policyholders, analysts, and more. In the end, the hope is for consistency, comparability, and transparency across insurance companies operating in different jurisdictions around the globe."