IFRS 9 introduced a situation whereby satisfying both criteria, insurers can use the measurement options of amortised cost and the fair value through other comprehensive income (FVOCI).
In the ongoing global economical climate, the volatility situations are impacting the IFRS9 and IFRS17 principles and overall asset and liability management, note the IFRS9 approach that was implemented in 2017/18, in operational need adjustment, provisions in the credit risks model for the valuations precision of expected cash flows..
Lets, look my point of views. the IFRS9 classified and measured investment on the assets side of the balance sheet. This predominantly allowed account for the investment using (at) Fair value on the balance sheet, further more it allowed more dynamic / forward looking views of the impairments of the investments. The impact of the different treatments of changes in assets and liabilities resulting from interest rate movements on the P&L, OCI and Balance Sheet of Insurer. Insurance entities, particularly those who currently hold amortised cost based assets or make use of the Available for Sale category (“AFS”) under IAS 39 will need changes.
In contracts of IFRS9, the IFRS17 cater more on the Liability side of the Balance sheet that will be measured at fulfilment value of insurance contracts by 2022/23. What does that meant, on the insurance contract is that what is promised to end client, the coverage the insurance claim, (obligation of payment made in future (many year), As we know the value of liability changes as a result of impact of changes in interest rate on the discount rate (change goes through OCI).
The challenge coming here when the Interest rate is a quite important factor of volatility, however the Accounting value of asset not affected by interest rate movements is/ being valued (impacted by amortisation/impairment principles) on the balance sheet.The insurance liability (IFRS 17) is closely connected to the financial instruments (IFRS 9) within insurers. When a individual buys an insurance, the insurance liability is created and with the paid premiums is a financial instrument (purchased). the Insurers want to reduce the volatility in earnings hence there are some choices within IFRS 9 and IFRS 17 that can make which impact the volatility. Under IFRS 17 insurers can decide whether results of changing financial risk assumption go through OCI or through the profit and loss account in recognition phase.
In the balance sheet under 17, these payments claim / payments valued according to their time values, essential, discounted current interest rate,
As results P&L will be based on current measurement and will be recognised as insurance provided to customer ... Not sure in this circumstance, How both contract accounting standard (IFRS9 and IFRS 17) intact each, though both based use the Fair value approach, how come the ‘asset and liability’ on the balance sheet match accounting unless Assumption applied, Provision are allowed. These clearly diminish the criteria / objectives of the regulation.
How both IFRS 9 and IFRS 17 approaches will be able to continue measures asses when there is increase in the interest rate (consistently affecting the market value of both sides (A&L) balance sheet.
The IFRS17 is more on Liberality impacts, The Asset side market side value will decrease and the Liability side fulfilment value decreased due to the higher discount rates. isn't insurers must consider the expected impact of this new Insurance Standard, they need to be aware of the interrelationship with the Financial Instruments Standard – IFRS 9 – which impacts the valuation of insurers’ assets for accounting purposes???
As the P&L statements will be impacted due to Covid19, (changing situations), In contrast effects in the balance sheet, the Recognition in the statement P&L is going to be bit tricky, Under the IFRS9, effective interest rate (long term market fluctuation), such as simple bond for assets were reflected considering all market fluctuation, Now, Let’s look in isolation, the association if asset classified in fair value thru the P&L account caused volatility, the P&L treatment under the 17 differ depending upon applicable measurement model’ like General Model (GM), Premium Allocation Approach (PAA) and the ... Fee Approach (VFA) . This Applies to contracts with direct participation features, as defined by three criteria for the P&L side, based on policyholders sharing in the profit from a clearly identified pool of underlying items.. I see this is CLOSE TO IFRS9 APPROACH....
the market fluctuation, we should look in association to 'Asset F&L, P&L causing the volatility .The P&L treatment in the IFRS17 also differ depending upon the measurement model, Like property causality, non participating Life business the interest (accretion) in the P&L account will be quite stable as it is based on historical Interest rates, the compounding with the historical interest rates, providing here more stability as no market changes to reflected in the interest rates whilst valuation.
From system perspective, both standards, the IFRS 9 and IFRS 17 require organisations to ensure data governance, lineage, quality and transparency, integration of data flows across the entire reporting chain. This includes a wide spectrum of data that will be used, from historic or current data (e.g. policy , instruments positions, and premium data or data to produced the risk adjustment etc) to forward-looking views data (e.g. data used to produce cash flow projections in the CRR, probability).
this new Insurance Standards are focusing on insurance liability reporting, MUST have far-reaching consequences for an insurer in terms of modelling, data, processes and IT systems; ultimately resulting in a different statement of OCI comprehensive income and more onerous disclosure requirements
In conclusion: the Insurance Earnings are a Consequence of both Liability and Asset Movement.
With IFRS 17 making significant changes to the valuation of liabilities of insurers, Less on assets as being used (current measurement and will be recognised as insurance provided to custome. the IFRS 9 has made changes to the valuation and income recognition of assets. especially when classification categories have been redefined in IFRS 9 and consideration is being given to whether the entity’s business model is evaluated as one held to collect contractual cash flows, one where the intention is to hold to collect and sell or one where the intention is just sales.
This assessment, combined with the assessment of the contractual cash flow characteristics were impacted the measurement option available to insurers.
The IFRS 17 introduces a situation where by satisfying both criteria, insurers can use the measurement options of amortised cost or fair value through other comprehensive income (FVOCI). The introduction of the FVOCI category to IFRS 9 was seen as a positive development and represented a significant improvement to the standard, in combination with the use of FVOCI in IFRS 17, for insurance companies. The IFRS9 and IFRS 17 insurance contracts accounting standard considerations for data, systems and processes having similar impact, the Large enterprise in Finance, insurer MUST start looking for an integrated data management, reusable risk assessment model.
More robotics process systems, The AI and Machine learning model to support business operation and regulatory reporting....
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