The International Financial Reporting Standard 17 (IFRS 17) is a new, transformative accounting standard.
Mandatory adoption of IFRS 17 began in 2023 with additional rules and amendments coming into effect January 1st, 2024. Insurers must be sure accounting teams have followed international standards for compliance.
WaterStreet Company facilitates compliance with cloud-based Policy Administration for P&C Insurance, designed by insurance experts for insurance experts.
IFRS 17 Meaning
Developed by the International Accounting Standards Board (IASB), IFRS 17 addresses inconsistencies in the accounting treatment of insurance contracts.
IFRS 17 brings about a standardized approach, providing clearer insights into an insurer’s financial position and performance.
Who is Affected by IFRS 17?
IFRS 17 impacts a broad spectrum of insurers, including life, non-life, and reinsurance companies. Its application extends to any organization that issues insurance contracts, regardless of the business’s primary focus. The purpose of IFRS 17 is to set a comprehensive and uniform financial reporting framework across the insurance industry.
The implementation of IFRS 17 has a profound impact on various roles within insurance companies.
- Actuaries play a crucial role in assessing and determining insurance contract liabilities under the new standard.
- Finance and accounting teams are responsible for ensuring accurate and transparent financial reporting, reflecting the changes brought about by IFRS 17.
- IT departments are essential to adopting and maintaining Policy Administration Systems that facilitate compliance with the standard.
IFRS 17 Recognition of Profit and Loss
IFRS 17 changes a company’s recognition of profit and loss for insurance contracts. Instead of the traditional “incurred claims” model, IFRS 17 adopts a “building block” approach, recognizing profit as services are provided over time. This shift is particularly important for long-term contracts, ensuring a more accurate representation of an insurer’s financial performance.
According to the Federal Reserve, “a Board-supervised insurer is required to aggregate its top-tier company’s capital requirements with its subsidiaries’ requirements to determine its enterprise-wide requirement.” Beginning January 1st, 2024, all Board-certified insurers must comply with this rule.
IFRS 17 also introduces the concept of separating earned interest from monthly interest, recognizing the time value of money. This distinction ensures that insurers appropriately reflect the time value of the services they provide, leading to more accurate and meaningful financial statements.
IFRS 17 Recognition of Claims and Disclosures
IFRS 17 places a strong emphasis on the timely and accurate recognition of insurance claims. This is crucial for providing stakeholders with a clear understanding of an insurer’s risk exposure and financial obligations.
The standard requires detailed disclosures, offering transparency into the assumptions made when estimating insurance contract liabilities. Such disclosures enhance the credibility of financial statements.
How to Comply with IFRS 17?
To effectively comply with IFRS 17, insurers must invest in a robust Policy Administration System with integrated Claims Management.
A modern and agile system, such as WaterStreet Company’s PAS, streamlines data collection, automates complex calculations, and allows real-time reporting, ensuring accuracy and efficiency in meeting the requirements of IFRS 17 standards. Modern PAS solutions not only support compliance but also enhance overall operational efficiency and risk management.
WaterStreet Company & IFRS 17
IFRS 17 represents a landmark shift in the accounting landscape for insurers. The impact extends across various types of insurers and significantly influences roles within insurance companies.
Founded in 2000, WaterStreet Company offers a cloud-based Policy Administration System, fully managed on Microsoft Azure cloud services and infrastructure. Our solutions facilitate transparency, improved decision-making, and a more accurate reflection of an insurer’s financial health while in compliance with IFRS 17.
Reach out to WaterStreet Company today to schedule a demo.
