By Talkmore Gandiwa
Insurance and Pension Commission (IPEC) says radical measures will be implemented to companies which does not comply by the commission regulation of adopting the IFRs 17 before 31 December 2023 although the insurance sector and the accountancy profession continue to face challenges in the adoption.
The new complicated rule which came into effect on 1 January 2023 was issued by the International Accounting Standard Board (IASB) to replace IFRS 4 which was familiar and simple to companies.
The standard will be internationally recognized by the end of December 2023, but IPEC said early adoption will help companies to familiarize with the standard and assess the industry performance on the rate of compliance.
In an interview, IPEC director of Actuaries Robson Mutangadura said since there is no extension in the implementation of the standard, the commission expect most insurers to be IFRS 17 compliant by end of 2023.
“The Commission will engage insurers on a case-by-case where compliance will be deemed to be lacking and take necessary regulatory actions beyond 2023,” said Mutangadura.
Adding on he said non-compliance will result in the companies` financial statements being qualified by the auditors.
“From a regulatory perspective, any non-compliance with requirements will be dealt with in terms of applicable laws,” said Mutangadura.
Insurance companies are at various stages of readiness, companies with international affiliation being at an advanced stage. “A few relatively small entities are still struggling with implementing the standard,” said Mutangadura.
The Commission has noted that due to skills gap, most insurers are relying on consultants to meet the effective date.
This comes after some companies had deferred implementing IFRS 9 meaning they will now have to adopt two complex standards at the same time.
The IFRS 17 effectiveness of the standard means that insurers are going to start reporting under IFRS 17 for the year- ending 31 December 2023. Therefore, full compliance will be measured when entities submit 2023 financial statements.
However, quarterly return submissions will help project the proportion of insurers likely to meet full compliance when submitting 2023 financial statements
The complexity of the new standard reporting shook companies as they are in the process of doing dry runs due to the high inflationary environment of Zimbabwe.
Companies are facing challenges such as high inflation, multiple currency, and price changes. Despite all these challenges the Insurance and pension commission said all insurance must fully comply with the early adoption of the new rule, citing that the noncompliant players will be dealt with.
The most significant challenges regarding adoption of this standard include High costs of investing in IT systems that enable production of the appropriate data that allow easier production of IFRS 17 financial statements.
To deal with this challenge, some organizations have adopted use of simple excel-based solutions with the support of actuarial consulting firms. However, in the long run, the Commission expects that all insurers should have robust IFRS 17 Information Systems.
Notwithstanding significant efforts by Government and other private institutions to promote and issue bonds as an investment vehicle, the bond market is still growing and not very deep.
As such, there is a challenge on what discount rate should be applied to cash flows that will be paid/received in future in order to get their current/present values. The Commission and other key stakeholders will provide the necessary guidance in the interim to enable insurers to value their cash flows that will be paid/received in the future in today’s terms.
Skills shortage – the standard requires expertise from actuaries, chartered accountants, risk experts, auditors, ICT experts among others. These skills are currently in demand across the world.
By establishing consistent principles for the recognition, measurement, presentation and disclosure of insurance contracts, IFRS 17 represents a new era in insurance accounting.
It does this by combining current measurements of future cash flows with the recognition of profit over the period in which services are provided.
IFRS 4 did not require insurers to identify in a systematic way which insurance contracts were profitable or loss making except at a high level that involved significant discretion. This resulted in different companies offsetting profits on some contracts against losses on others in different ways, making comparisons challenging.
That is one of the new features of IFRS 17. It requires entities to first identify homogeneous risk portfolios then divide these into groups based on their profitability.
That makes it much more visible whether new business creates or destroys value based on IFRS 17’s conventions.
It is expected to come with complexities on the financial disclosures of insurers and profound operational impacts on all aspects of the companies, meaning that Zimbabwe insurers will need to implement significant technical and practical changes to current practices.
