The IFRS 17 is effective for annual reporting periods beginning on or after 1 January 2023, and replaces the existing IFRS 4, which was adopted back in 2005, as a “transitional standard”. Early adaptation of IFRS 17 is permitted, provided an entity also applies IFRS 9.
The new standard enables a better understanding of the risk of insurers’ exposure to investors, as well as the financial position and performance of insurers participating in the process. Namely, IFRS 17 will identify as insurance contracts those contracts under which the entity accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.
What’s the impact of IFRS 17?
The IFRS 17, as a new accounting standard, ensures data transparency and a high level of comparability at the level of local and global financial reporting. Data from the financial statements serve as the basis for assessing the effects of the contracts on securing the financial position, financial results, and cash flows of the entity.
Both during and after the transition, new accounting mismatches may arise, which will need to be identified.
The application of IFRS 17 will also have fundamental operational effects such as IT development, new tools, the adaptation of existing accounting standards and changes in KPIs. This also means higher costs for insurance companies, which will need to develop internal and external systems for implementing the new standard.
