THE introduction of the International Financial Reporting Standard 17 (IFRS 17) is a timely intervention that addresses the findings of the Justice George Smith-led commission of inquiry into the loss of value in the insurance and pension industry during the hyperinflation era, a top actuary has said.
By Melody Chikono
African Actuary Consultants managing director Tinashe Mashoko told businessdigest on the sidelines of the Insurance Institute of Zimbabwe (IIZ) conference in Victoria Falls on Tuesday that the new rules would bolster the Smith commission’s recommendations.
“It’s a timely intervention considering we had the president put in place the commission of inquiry into the loss of value that happened in the industry. It promotes the finds and failings which inquiry’s investigation unmasked.
Failings around Poor data management, investments in insurance companies systems and issues of disclosure. The standard effectively addresses these by improving the level of disclosure and transparency that ultimately results in data management and governance and better investments in information in technology systems,” he said.
Issued by the International Accounting Standards Board (IASB), IFRS 17 comes into effect after nearly 20 years of development and will be effected in 2021.
Although companies will have to part with up to US$300 000 to have the new system in place, IFRIS 17 is seen addressing failures around data management, governance issues and investments transparency in the industry.
The standard comes at a time the insurance regulator, Insurance and Pensions Commission, is implementing the Zimbabwe Integrated CAPITAL and Risk Project (ZICARP) and companies are expected to adopt hyperinflationary accounting
By establishing consistent principles for the recognition, measurement, presentation and disclosure of insurance contracts, IFRS 17 represents a new era in insurance accounting 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 an organised way which insurance contracts were profitable or loss making except at a high level that involved significant discretion. The standard is, however, expected to have implications on the financial disclosures of insurers and profound operational impacts on all aspects of the companies, meaning that Zimbabwe insurers would need to implement significant technical and practical changes to current practices.
Mashoko, however, also said companies will have to invest heavily into this standard as its implementation as it’s not a matter of choice.
“Based on our experience and what we are seeing in other countries, a company will need anything between US$150 000 to US$ 300 000 or equivalent for by way of investment into the programme but it will depend on how complex their products are, how the prior systems were equipped. Some may need more also depending on how their actuarial resources were,” he said.
Companies will need a complete overhaul of their fundamental actuarial models, financial reporting procedures and systems, and transparency demands within their corporate governance structures.
IFRS 17 also requires entities to first identify standardised risk portfolios then divide these into groups based on their profitability making it more discernible whether new business creates or destroys value based on IFRS 17’s conventions.