Ernst & Young (EY) Sri Lanka conducted an in-depth workshop for the Insurance Sector on IFRS 17 – Insurance Contracts, which are due to come into effect from January 2022.
The session was organised to provide insights from explaining the fundamentals of IFRS 17 to implementation of the standard. The workshop attracted many finance and actuarial professionals working on implementation of IFRS 17 in their respective companies.
IFRS 17 is set to change the way insurers around the world explain their bottom lines to its shareholders and all other stakeholders. It is also set to fundamentally change insurers for the better, with closer links between actuarial teams and finance. In certain parts of the world, it would also result in changes to the products sold so that they are better aligned with the new accounting standard.
Opening the session, Partner of EY Sri Lanka, Hiranthi Fonseka said the International Accounting Standards Board (IASB) issued IFRS 17 in 2017 after 20 years in the making. While acknowledging that implementation of IFRS 17 will be a challenging task for insurers, she was confident that it would lead to improved accounting practices, transparency and comparability.
Speaking on the impact for General Insurers (GI), she said that although a considerable portion of insurance contracts are expected to be eligible for the simplified measurement approach (Premium allocation approach), there would be a number of areas that would still impact the GIs which would require considerable time and effort than anticipated. Accounting flow and configuration of the chart of accounts, treatment of bundled products, identification and measurement of investment components (Cashback, premium refunds), treatment for acquisition expenses and presentation were a few of the highlighted areas.
Commencing the technical session, Fonseka explained the requirements of separation and dis-aggregation of Investment components with the use of a number of local examples. She said that with IFRS 17 requiring insurers to exclude investment components from the Insurance revenue, Life insurers are expected to have a significant impact at the top level, considering many life insurance policies sold in the local market contain features that would meet the definition of an investment component.
She explained that there could be certain features in policies sold by GIs that may require separation and accounting under SLFRS 15.
Senior Manager, Financial Accounting Advisory Services of EY Sri Lanka, Sahan Gooneratne said the dynamics of IFRS 17 will not only have implications on the financial statements of an insurer but also have considerable operational impact on the organization in terms of systems, policies and processes, making C-suite engagement and sponsorship critical for a successful transformation.
The second half of the session was focused on calculations under the three measurement models, which was led by Manager, Financial Accounting Advisory Services of EY Sri Lanka, Elamaran Jegadeeswaran.