KUCHING: The upcoming Insurance Accounting Standard (known as IFRS 4 Phase II) is expected to transform the insurance industry as it is set to create a new financial language to inform aid insurers and inform investors on the performance of the insurance industry.
Deloitte Southeast Asia observed this recently, during its conference which explores latest updates on the forthcoming IFRS 4 Phase II and the major impact in adopting the said standard as well as the key implementation steps.
“IFRS 4 Phase II will transform the insurance industry and how analysts go about comparing insurance companies.
“It will impact what constitutes revenue and profit in an insurance company and it introduces unprecedented levels of transparency on profit and risk levels embedded in insurance liabilities.
“The insurers’ operating model is bound to change including new processes and systems.
“Obtaining the resources to implement the changes will pose a significant challenge and as with all major transformations the amount spent on implementation will be significant,” Raj Juta, Deloitte Southeast Asia Insurance Sector leader, said in a press statement.
The International Accounting Standards Board (IASB) is the regulator who is drafting IFRS 4 Phase II and they appear to be on target to publish the new rules before the end of 2016 or early 2017.
IFRS 4 Phase II would then become IFRS 17 Insurance Contracts. The effective date will be brought to the IASB for decision in September 2016.
According to Deloitte, IFRS 4 Phase II transforms how insurers account for income and liabilities from insurance contracts they sell, it creates a new financial language with which to inform investors about the performance of this complex global industry.
“This new financial language will be used by all insurers that adopt IFRS regulations, thereby delivering consistency in the financial reporting for a sector that has never had it,” it added.
Deloitte and the Economist Intelligence Unit confirmed in two global surveys that the implementation time frame is extensive, the implementation costs material and the activities will impact several dimensions of insurers’ operating models.
The impact to Asian-based insurance organisations, whether subsidiaries of European insurers or domestic insurers, is significant, given that many Asian countries adopted IFRS and therefore will comply locally with the standard when issued.
“The adoption of IFRS 4 Phase II will take place in parallel with several national reforms of insurance risk-based capital regulations that are anticipated to be based on broadly the same principles offering strategic synergy benefits in terms of financial and solvency reporting,” it said.
The Deloitte event was graced by more than a hundred participants who are senior regulators, CEOs, CFOs, accounting, and finance professionals, and actuaries from various insurance companies in Malaysia.
The event was also attended by representatives from Life Insurance Association of Malaysia, Malaysian Accounting Standard Board, Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants.
The conference was opened by Deloitte Malaysia Country managing partner Tan Theng Hooi. The speakers included Deloitte Global IFRS Insurance leader Francesco Nagari, and Deloitte Southeast Asia Actuarial Services associate director Mehul Dave.
There was a panel discussion following the presentation and Nagari and Dave joined in the panel by Deloitte China director of Actuarial & Insurance Solutions Jeremy Menzies, AmMetLife Insurance Bhd chief financial officer Sophia Ch’ng, and Liberty Insurance Bhd financial controller Adriel L Nunes.
As a component of Deloitte Southeast Asia, Deloitte Malaysia has access to the breadth and depth of insurance industry expertise of Deloitte globally and therefore has a unique advantage in bringing to the local market this expertise in a seamless manner.
Led by its Insurance Sector leader, Juta, Deloitte Malaysia together Deloitte Southeast Asia continue to build their capabilities in the region to help their insurance clients to stay one step ahead in the era of transformational change brought about by the changing IFRS requirements, amongst others.