Insurance firms get more time to adopt new accounting regulations

The insurance industry has been granted more time to implement new regulations meant to improve financial reporting.

The International Accounting Standards Board, based in London, deferred the effective date for implementation of International Financial Reporting Standards (IFRS 17) by two years -to 2023.

The IFRS 17 will force insurance companies to be conservative and slow down premium growth because claims under the new regulations will increase at the onset due to a forward-looking model (much like IFRS 9 with banks).

Additionally, IFRS 17 requires income to only be recognised when the firm receives the premium.

“The board has today decided that the effective date of the standard will be deferred to annual reporting periods beginning on or after January 1, 2023,” said the board in a statement on Tuesday.

Recognise revenue

The standards were to be enforced next year.

“In the past, firms have been able to recognise revenue not already submitted by brokers and agents. We may see a huge write-off in insurance firms’ P&L (profit and loss) as most of the insurance companies already recognised revenue not received,” said Patrick Mumu of Genghis Capital.

Cases of fraud by brokers and agents also make it difficult for insurers to fully realise the premiums paid by customers.

Share prices of listed insurance companies dropped by an average of 20.5 per cent in the 12 months to January 2020.

The hardest hit was CIC Group, whose share value dropped by 36.8 per cent in 2019.

However, investors are expected to have a change of fortune this year with insurance companies having recorded growth in profit in 2019, indicating a positive outlook for their share value.