KPMG welcomes the release of the Exposure Draft and revised proposals, which are a major step towards implementing a common insurance reporting framework across much of the world. The debate has run for more than 15 years and the conclusion of the insurance project is now in sight.
Frank Ellenbuerger, KPMG’s global head of insurance, commented: “The IASB has addressed the key concerns of constituents while retaining the objective of a current value basis for measuring insurance contract liabilities – bringing a final IFRS for insurance a great deal closer. The length of the debate on the insurance project indicates there is no ideal model that will please everyone. The proposals are complex and this is the last chance for insurers to influence the outcome of the project. Given the current diversity in practice KPMG considers it essential that the IASB finalises a global insurance standard.”
Scott Guse, KPMG’s Asia Pacific IFRS insurance leader, commented: “In Australia, whilst there will be change for all Insurers, players in the General Insurance market will be far less effected than those in the Life Insurance space. The inclusion in the Exposure Draft, of an alternative model for short duration contracts, referred to as the ‘Premium Allocation Approach’ will provide General Insurers with the ability to adopt an accounting model not to dissimilar from what we current operate with in Australia. Life Insurers, however will have to apply the new ‘Building Blocks’ model proposed in the Exposure Draft.
The IASB’s proposals would affect the way in which insurers report their profitability and financial position and would be likely to result in an overall increase in volatility in profit or loss and equity for all insurers. This volatility will primarily arise when remeasuring insurance contract claim liabilities as some of the remeasurement will now go through other comprehensive income (OCI) instead of through profit and loss as is the current practice.
The extent to which this volatility in profit or loss and equity would be mitigated will be highly influenced by whether financial assets which are linked to the insurance contract liability under proposed revisions to IFRS 9 Financial Instruments are measured at fair value through OCI, fair value through profit or loss or amortised cost. The need to consider the implications for asset-liability management would be accelerated, as the requirements of IFRS 9 are currently expected to come into effect before the insurance proposals.”
Mr Guse continued: ‘The re-exposure also introduces a new presentation approach for both the Statement profit or loss and OCI and the Statement of financial position, which would radically change the way insurers – especially life insurers – report performance.
The proposals would be likely to result in greater emphasis on the entire statement of profit or loss and OCI rather than just profit or loss. These highly technical accounting changes would need to be explained to analysts, investors and other stakeholders’.
Richard Marrison, KPMG’s Australia insurance sector leader, said: Insurers may have to contemplate major changes to data and systems, education and communication to stakeholders and changes to asset-liability management. Profit profiles and product offerings may be impacted and insurers would need to ramp up resourcing in the finance and actuarial functions. Marrison summarised: “If insurers start planning now, the wave of change could open up opportunities for synergies in areas such as data collection, modelling capability and investment in systems and resources. The bottom line is that the technical aspects of the proposals would need to be made operational.”