Over recent years, one of the most significant challenges for the IAIS has been the lack of a consistent basis of accounting applied across jurisdictions – either for regulatory or financial reporting purposes.
For the first time since we began publishing this report, we are finally close to having an international financial reporting standard (IFRS) for insurance contracts. This year, the International Accounting Standards Board (IASB) has made significant progress in its insurance contract project and it now expects that the final standard should be issued by the end of 2016.
Application of a harmonized financial reporting framework will have significant advantages for both the IAIS’s work and the practical application of the final requirements. With the technical decision-making complete, the IAIS could revise its proposals and potentially incorporate some of the key requirements of this accounting standard to ensure greater harmonization between accounting and regulatory valuation bases. For this reason, it is important to recognize that the changes to be introduced to the IFRS may also have regulatory impacts.
The impact of accounting changes is the fourth chapter of Evolving Insurance Risk and Regulation. In this chapter we provide a general overview of the forthcoming IFRS for insurance contracts, outlining the key aspects of the standard. We also provide our perspectives regarding the efforts to create a globally consistent accounting framework for insurance contracts and discuss how this could in the future interact with the IAIS’s work.
For the first time, the forthcoming insurance contracts standard will require consistent accounting for insurance contracts, providing the ability to analyze results more meaningfully across entities and jurisdictions. The standard will be one of the most complex standards issued by the IASB and its implementation will not be straightforward, particularly for those insurers that issue long-duration insurance contracts. Some of the related impacts include:
The forthcoming standard will require significant changes on the part of both preparers and users of insurers’ financial statements.
For more information or to discuss the best approach for your organization in meeting these challenges, and turning them into an opportunity, please contact your local KPMG contact.