Getting up to speed with IFRS 17 for insurance contracts

Implications for Malaysian insurers

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IFRS 17 has an international impact — applying to all 125 jurisdictions which use IFRS and impacting over 500 insurance companies globally, including Malaysian conventional insurers and takaful operators.

It is the biggest change to accounting standards for insurers in the past 20 years. It will affect multiple areas such as actuarial models, accounting systems, product design, financial statements, taxation and operations including agency channels.

Within that 4-year implementation window (2017—20), insurers will also need to adapt to a wave of other accounting standard changes:

  • IFRS 9 Financial Instruments — effective   1 January 2018
  • IFRS 15 Revenue from Contracts with Customers — effective 1 January 2018 
  • IFRS 16 Leases — effective 1 January 2019

Early investment and a structured planning approach are key to a smooth IFRS 17 implementation. Insurers that start earlier rather than later will be in a better position to take advantage of IFRS 17 market opportunities and be best placed to shape their business journey and financial performance going forward.

Asia-Pacific survey on IFRS 17 implementation

Take 5, Volume 5: Issue 3, 19 June 2017

 

Take action now

IFRS 17 sets a new accounting and reporting landscape for insurers

IFRS 17 in a nutshell

What?

  • One accounting model for all insurance contracts in all IFRS jurisdictions
  • Applies to all types of insurance contracts

Why?

  • Consistent framework for insurance contracts (including Malaysian takaful contracts)
  • More useful and transparent disclosures
  • Better information about profitability

How?

To be applied across all facets of accounting for insurance contracts including recognition, measurement, derecognition, presentation and disclosure.

When?

Effective 1 January 2021. Early application is permitted.

 

Malaysian insights

IFRS 17’s impact on Malaysian insurers (including takaful operators)

Investment-linked contracts

The IFRS 17 measurement approach on investment-linked contracts differs significantly from the current Risk-based Capital (“RBC”) basis. Given the significance of investment- linked products in Malaysia, insurers (including takaful operators) will need to assess the extent of the financial impact of IFRS 17.

Contract boundaries

The IFRS 17 measurement approach alters the recognition of cash flows as it focuses on the insurer’s or takaful operator’s ability to reprice contracts. Malaysian insurers presently determine contract boundaries based on its renewability.

 

Kick-start your IFRS 17 implementation

5 actions you can take now

  1. Conduct a gap analysis to understand key differences against your current accounting, actuarial and reporting practices.
  2. Understand the interpretative issues and analyse the financial, operational and system implications of IFRS 17 (and other new accounting standards) on your organisation.
  3. Determine a realistic implementation roadmap with draft budget and resourcing plan.
  4. Assess the strategic and product implications on other current or planned programs of activity including new product launches, in the next 3 to 4 years.
  5. Educate the executive management team and Board on the new requirements and implications.

“The new IFRS 17 will have a major impact on profit and total equity for insurance companies. In particular, the requirement to restate the opening balance sheet as if the standard has always applied to existing in-force business on the implementation date will require significant effort. As such, planning early and allowing sufficient time to test the results and perform pilot runs are critical to the successful implementation of IFRS 17.”

— Brandon Bruce
EY Malaysia Insurance and Takaful Leader