Experts at Deloitte Nigeria have advised players in the insurance sector to work towards fully implementing the latest International Financial Reporting Standard (IFRS) 17.
The IFRS 17 which was promulgated by the International Accounting Standards Board (IASB) on 18 May 2017 replaces IFRS 4 on accounting insurance contracts. It becomes effective for companies that report under IFRS after 1 January 2021.
The objective of IFRS 17 sets out the requirements that a company should apply in reporting information about insurance contracts it issues and reinsurance contracts it holds.
At an IFRS 17 breakfast meeting with players in the Nigerian insurance sector, Fatai Folarin, CEO of Deloitte West Africa said the new standards will only open up the insurance space and encourages big investments.
“Insurance business has a lot of influence on financial institutions,” Folarin said. “Abroad they have a lot of money and even own banks. IFRS 17 will make it easy to attract investors for Nigerian insurance businesses. If we implement IFRS 17, insurance businesses would attract big names into Nigeria, to come and introduce products that we are yet to see here.”
The IFRS 17 began as an IASB project to undertake comprehensive review of accounting for insurance contracts when the IASB added the project to its agenda in September 2001, taking over the equivalent project started in April 1997 by the IASB’s predecessor body. For the past 16 years, the project was known as IFRS 4 Phase II.
The IASB issued a discussion paper in 2007 and the first exposure draft “ED/2010/8 Insurance Contracts” in July 2010. A second targeted revised exposure draft “ED/2013/7 Insurance Contracts” was established on 20 June 2013. The IASB finalised its deliberations in February 2016 and made the last set of amendments in February 2017 as a result of the field test activities conducted during the summer of 2016.
The IFRS 17 comes with significant changes from its predecessor. According to Julius Faure an Audit Manager with Deloitte, the current IFRS 4 does not specify how the actuarial reserves should be calculated. IFRS 17 will specify how to calculate it.
The new standard measures insurance contracts either under the general model or a simplified version called the Premium Allocation Approach. The general model is defined such that at initial recognition an entity shall measure a group of contracts at the total of the amount of fulfilment cash flow (FCF), which comprise probability-weighted estimates of future cash flows, an adjustment to reflect the time value of money (TVM) and the financial risks associated with those future cash flows and a risk adjustment for non-financial risk; and the contractual service margin (CSM).
