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IFRS 17 is a new accounting standard issued by the International Accounting Standards Board (IASB), replacing IFRS 4. It establishes principles and modifies old principles(IFRS 4) that apply in all aspects of the accounting of insurance contracts.
Why was IFRS 17 adapted?
IFRS 4 consisted of accounting policies for insurance companies which allowed them to follow different accounting standards in different countries.
Within the same country the Insurance Industries were using different interest rates rather than the prevailing interest rates, these led to inconsistencies, and the investors were facing difficulties in comparison between different sectors.
The implementation of IFRS 17 will be useful in removing these inconsistencies.
Insurance companies will have to provide updated information about the obligations, risks and performance of the insurance contracts.
This will lead to increased transparency and financial information reporting by the companies which in turn will help the analysts and investors to understand the insurance sector better.
Insurance companies have been valuing insurance contracts based on historic information, after the implementation of IFRS 17 they will value insurance contracts based on current measurement models.
Every company and individuals issuing insurance contracts, will be subject to the compliance of IFRS 17, however there are some exceptions:
- Ordinary product warranty issued as sales transactions
- Financial guarantee contracts
- Fixed fees service contracts
Most listed insurers use IFRS Standards. The total assets of insurers using IFRS Standards in 2015 was $13 trillion.
IFRS 17 will be effective for annual reporting periods beginning on or after 1 January 2023 with earlier application permitted as long as IFRS 9 has been applied.
To get any further updates on IFRS 17 and its implementation and application, https://www.ifrs.org/issued-standards/list-of-standards/ifrs-17-insurance-contracts/#about