Something big is happening in the world of insurance company reporting. International Financial Reporting Standard (IFRS) 17 is a complex new reporting standard that has been in the making for the last 20 years. The standard is an overhaul of the current IFRS 4 and comes into effect in two years’ time.
IFRS 17 provides greater value to users of insurance company financial statements and their stakeholders. These include insurance company management, their shareholders and potential investors, as well as regulators such as the Insurance and Pensions Commission of Zimbabwe and the Zimbabwe Revenue Authority.
However, significant preparation is required between now and then with most insurance companies in South Africa and other parts of the continent well on their way to implementation.
IFRS 17 will have a profound impact on actuarial and financial functions, as well as key business functions such as IT, strategy, product, risk management and sales functions.
The standard requires Actuaries and Accountants to work closer together when reporting insurance company results as a lot of technical skill will be required in building the three building blocks required to satisfy the new reporting requirements. IT specialists, data analysts, risk management and those relying on information on the profitability of insurance contracts to make key business decisions, will all need to be involved in building the new standard as well as in understanding the new results to be reported.
As a key user of the new insurance company results, the Board of Directors have an important role to play, both during preparation, implementation and the ongoing use of the new standard.
Other key stakeholders who have an interest in insurance company profitability include the regulator and the tax authorities, Zimra, whose taxation of insurance companies will be affected by the emergence patterns of profits under the new standard. With effect from December 31, 2019, Ipec now requires all insurance companies to submit their financial statements to the regulator. A standard such as IFRS 17 will allow for greater comparability of such results.
Professional bodies such as the Actuarial Society of Zimbabwe (ASZ), the Institute of Chartered Accountants of Zimbabwe (Icaz) and Public Accountants and Auditors Board (PAAB) will all be interested and affected stakeholders as well. IFRS 17 is a technology-heavy change programme, which will require investment in new data and IT systems. It also has a major impact on other insurance company processes.
Insurance companies may need to consider principles of the new risk-based capital regime, ZiCARP, which is also expected to be finalised in the second half of 2020. The Zimbabwe insurance industry is already lagging behind other African countries which have launched risk-based solvency management regimes modelled along the lines of Solvency II. For example, South Africa launched the Solvency Assessment and Management regime in 2016, with Kenya, Nigeria and Botswana all at varying stages of implementation.
If Zimbabwe is to attain Vision 2030’s objective of middle-income country status, we will need the insurance industry to be strong as it has a key role to play.
Not only do insurance companies provide much-needed protection and cover as business and entrepreneurs take on risks, but they also invest in companies and much needed infrastructure that all contribute to much-needed economic growth.
Mashoko is African Actuarial Consultants managing director.