As Nigerian insurance companies begin the process of transition to International Financial Reporting Standard (IFRS) 17, expected to bring uniformity to the sector’s accounting standard with global peers, seven issues will be critical for operators.
Some of the issues that operators would have to contend with includes new reporting format, profitability changes due to quality of risks, changes in taxation, critical management decisions on choice of risks, investment income decisions; cost of transition, particularly training and software acquisition; as well as transparency and corporate governance.
IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard.
The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts, and the information gives a basis for users of financial statements to assess the effects that insurance contracts have on the entity’s financial position, financial performance and cash flows.
IFRS 17 was issued in May 2017, and applies to annual reporting periods beginning on or after 1 January 2023.
Raphael Akomolede, finance department, Leadway Assurance commenting recently on IFRS 17 said the main objective of the IFRS is to standardize insurance accounting globally to help users of accounts make sensible comparisons between companies, their past performance, their current financial position and risk exposure.
The impact of IFRS 17, according to him include improved comparability for the first time; relevant and updated measurement of insurance contract liabilities; a more intuitive presentation of financial performance and position; enhanced disclosure and transparency and a clear distinguishing of insurance activities from investment activities.
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Like what experts have said, reporting of insurance companies financial accounts will bear a new look from what it has been. According to them, it will be the same locally and internationally, and this is expected to increase investor confidence in the Nigerian insurance industry.
The second issue that insurers would have to contend with is profitability. Experts say, quality of contracts held by insurance companies will determine their profitability or otherwise.
The third issue is on companies’ board and management. In IFRS 17, board and management would have to be very cautious on the type of business they admit, because quality of risks determine how profitable the companies will be, their ability to meet claims obligation, and pay shareholders dividend.
The fourth issue is about what model of taxation IFRS 17 compliant insurance accounting will take. It has been noted that the industry regulator, the National Insurance Commission was leasing with the Federal Inland Revenue Services (FIRS) to device appropriate model of taxing insurance companies, though this was not yet clear on what has been agreed.
The fifth issue is about investment income of insurance companies. Experts say this would have to be taken very seriously if companies will become profitable, as a lot of pressure will be on underwriting profit in the new IFRS 17 format of accounting.
The sixth issue is cost of transition. Companies will have to spend so much to be able to comply, particularly on capacity building, which will cut across board, management and principal staff of insurance companies. Issue of acquiring the needed accounting software is also critical, as insurance companies are presently investing in technology to make this transition smooth.
Seventh issue that insurance companies will have to contend with is corporate governance and transparency.
According to industry watcher’s, corporate governance practice in this reporting standard will be high as many things cannot be hidden having become a global standard format.
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