Insular Life (InLife), the Philippines’ first Filipino life insurance company, sees the adoption of IFRS 17 as a significant shift in the measurement and reporting of insurance contracts on their financial statements.
This new global standard is expected to enhance risk management by explicitly recognizing the risks associated with insurance contracts on balance sheets, promoting transparency and consistency in accounting.
Accounting standards play a crucial role in maintaining consistency and transparency across various domains, including the realm of insurance contracts.
In a significant effort initiated in 2004, the International Accounting Standards Board (IASB) embarked on the “IFRS 4 Phase II” project with the goal of standardizing insurance contracts, ultimately leading to the development of IFRS 17, a global accounting standard introduced to enhance transparency and comparability across geographies and economies.
IFRS 17, published on May 18, 2017, with its effective date set initially for January 1, 2021, has aimed to address recognition, measurement, presentation, and disclosure requirements for insurance contracts, replacing its predecessor, IFRS 4.
However, due to stakeholder concerns and challenges, the IASB amended IFRS 17 in June 2020, deferring its implementation by two more years to January 1, 2023.
IFRS 17 applies to insurance, reinsurance contracts, and investment contracts with discretionary participation features, aiming to harmonize accounting practices across the global insurance industry, providing greater transparency, consistency, and comparability of insurance contracts.
One of the key changes in IFRS 17 is the recognition of the long-term nature of insurance businesses, primarily measuring insurers’ liabilities and requiring the reporting of contractual service margin (CSM) as profits realized over time, enhancing the financial health of insurers.
While the global implementation of IFRS 17 was initially set for this year, the impact of the COVID-19 pandemic prompted the Insurance Commission (IC) to defer the local implementation in the Philippines to January 1, 2025.
This adjustment allowed local insurance and reinsurance companies, as well as health maintenance organizations (HMOs), to adapt to the changes brought about by IFRS 17.
In preparation for the adoption of IFRS 17, InLife has invested extensively in technology and training, conducted impact assessments to assess potential implications, and revamped financial systems and processes to align with the new requirements.
While the transition to IFRS 17 poses challenges, such as extensive data analysis and potential impacts on insurers’ cost structures, InLife remains committed to ensuring a seamless transition and adaptation to this global accounting standard.