With the approaching implementation of IFRS 17, and the race to get balance sheets in order, reinsurers have much to consider, said S&P Global Ratings.
Reinsurers, and primary insurers, should brace themselves for hurdles in the transition to IFRS 17, said the rating agency in a report titled ‘Reinsurers and IFRS 17: Getting balance sheets ready and on time’.
The implementation of IFRS 17, effective as of 1 January 2023, requires insurers and reinsurers globally, excluding those based in the US, to restate their balance-sheet comparatives with new key metrics.
In June 2020, the International Accounting Standards Board published its final amendments to IFRS 17, addressing issues for primary insurers regarding their purchase of reinsurance. These amendments dissolved some significant accounting mismatches between market value assets and book value liabilities, which would have created risks for reinsurers.
Despite this improvement, S&P believes the transition to IFRS 17 is a major challenge for reinsurers and users of their financial reporting. Reinsurers are likely to be up against technical accounting challenges. They will also have to develop new key performance indicators (KPI) and bring important stakeholders, both internal and external, up to speed.
Not ready for IFRS 17
In S&P’s view, the accounting and risk management systems of reinsurers – as well as of primary insurers – are far from being IFRS 17 ready.
Although the agency expects pending updates to GAAP will somewhat improve the comparability between those standards and IFRS 17, differences will remain.
The new KPIs could affect reinsurers’ risk appetite and bring about shifts in business and financial strategies that could, in the long term, have a ratings impact. M