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AM Best analyst explains how IFRS 17 will give a clearer view of insurers’ financials after it is implemented in 2022.
  • John Weber
  • March 2020
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The International Financial Accounting Standard 17 or, IFRS 17, is scheduled to replace IFRS 4 in just a little less than two years. A Best's Special Report, IFRS—A Welcome Advance. Value Measures in Primary Accounts. Delay Was a Necessity, details what's in store for insurers come January 1, 2022.

The author of the report, Anthony Silverman, associate director, criteria and research discussed these changes with AMBestTV.

The change to IFRS 17 from IFRS 4 accounting standards is not expected to have a near-term impact on insurers' credit ratings, he said.

Silverman also highlighted how IFRS 17 improves upon current standards.

Following is an edited transcript of the interview.

What exactly is IFRS 17?

IFRS 17 is an accounting standard promulgated by the International Accounting Standards Board, which is a global body based in London, and it's a new accounting standard for insurance contracts. It replaces IFRS 4, which was the previous one, and I'm putting it that way because it applies to insurance contracts rather than insurers.

It's the insurance liability number that it focuses on, and insurers remain subject, as they are now, and as they will continue to be, to all the other accounting standards for the other parts of their reporting.

What problems is IFRS 17 meant to solve?

It is there actually for some very good reasons, and there to deal with the problems around previous reporting for insurers. There are three categories that I'll put that under.

The first is that the previous reporting was inconsistent. IFRS 4, which I mentioned before, grandfathered previous practice, so the reporting does things in a different way in different countries.

It does it in different ways for different products, some of which there may be good reasons, but for some of which there may be bad reasons, and for some of which there's really no reason at all.

It's inconsistent, not necessarily for good reasons, and often not for good reasons. Consistency is something which users of financial reporting value, and IFRS 17 is there to do a bit more of that. That's one reason.

The other one, and this is crucial for all users of financial reporting, the numbers that are there in the existing reporting, and as I've said, they vary in how it's done, so inevitably, they all have equally varying relationships to the market values of the items that are being reported. That's quite deeply problematic for all users of financial reporting.

It's not just that. It's not just that it varies. What it means is, it differs. In fact, often, it can actually be unclear, but what it does mean is that it's also very complex.

The motivating factors, in effect, the all-encompassing motivating factor for IFRS 17 was that the previous reporting was felt to be bad for the public image of the insurance sector in financial markets because you have to be too much, arguably, of a specialist to get a reasonable picture of an insurer's performance and circumstances. That's not sufficiently communicated by previous financial reporting.

These are the issues that IFRS 17 is there to attempt to solve.

Consistency is something which users of financial reporting value, and IFRS 17 is there to do a bit more of that.

Anthony Silverman
AM Best

If the changes are so necessary, why do insurers seem to be so happy that the implementation is being delayed for as long as it is?

That is a very, very good question. The answer revolves around the difficulties of implementation. Parts of the reason for the way financial reporting has previously been done is that the framework was part of a system which was for the convenience of the companies.

A lot of these companies started out as mutuals. The reporting has evolved over a long period of time, and it doesn't really serve the purpose for companies which have significant external financial stakeholders, whether that's credit investors, or commercial counterparties or indeed investors.

Though IFRS 17, in meeting the challenges that it sets out to do, it does involve new records, new data, new systems, and the implementation amounts to quite a chasm for the companies to cross, so this is a big deal in that sense.

It's implementation, the issues around implementation that drive all the separate reasons that companies are perhaps happy that it's being delayed.

Could the new standard have any impact on a company's rating?

The short answer is, we don't expect any near-term impact on ratings. We'll be taking a different route to the same destination. We're going to be starting with different numbers, often not just the same quantities calculated differently, but new quantities in many cases, with different qualities.

We'll be identifying the underlying economics, as we do now, and it's not expected there'll be any near-term impacts on ratings.

What remains the case is that there may be second-order behavioral effects, if I can put it that way, because companies may behave differently. The old adage, what gets measured gets managed will probably feed through.

Companies will, to some degree, change what they do and maybe even the products to suit the reporting. Some way down the road, that may have an effect which is, we might want ratings monitored continuously. A fresh look some way down the road may have some effects in that way.



John Weber is a senior associate editor, AMBestTV. He can be reached at

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