Ernst & Young (EY) Sri Lanka conducted an in-depth workshop for the Insurance Sector on IFRS 17 – Insurance Contracts, which are due to come into effect from January 2022.
The session was organised to provide insights from explaining the fundamentals of IFRS 17 to practical implementation of the standard.
The workshop attracted many finance and actuarial professionals working on implementation of IFRS 17 in their respective companies.
IFRS 17 is set to change the way insurers around the world explain their bottom lines to its shareholders and all other stakeholders.
Opening the session, Hiranthi Fonseka - Partner of EY Sri Lanka indicated that the International Accounting Standards Board (IASB) issued IFRS 17 in 2017 after 20 years in the making. While acknowledging that implementation of IFRS 17 will be a challenging task for insurers, she was confident that it would lead to improved accounting practices, transparency and comparability.
Speaking on the impact for General Insurers (GI), Fonseka mentioned that although a considerable portion of insurance contracts are expected to be eligible for the simplified measurement approach (Premium allocation approach), there would be a number of areas that would still impact the GIs which would require considerable time and effort than anticipated.
Commencing the technical session, Fonseka explained the requirements of separation and disaggregation of Investment components with the use of a number of local examples.
She highlighted that with IFRS 17 requiring Insurers to exclude investment components from the Insurance revenue, Life insurers are expected to have a significant impact at the top level, considering many life insurance policies sold in the local market contain features that would meet the definition of an investment component.
Sahan Gooneratne - Senior Manager–Financial Accounting Advisory Services of EY Sri Lanka enlightened the audience on a number of key elements of IFRS 17 which included, level of aggregation decisions, identification of onerous contracts, methods on establishing a discount factor and risk adjustment.
The second half of the session was focused on calculations under the three measurement models, which was led by Elamaran Jegadeeswaran, Manager – Financial Accounting Advisory Services of EY Sri Lanka.
Towards the latter part of the session the transition approaches were discussed along with the challenges involved in adopting either of the three approaches. Gooneratne also highlighted that life insurance companies that have active policies issued decades back will be required to extract policy inception data if they are to adopt a fully retrospective approach.
The workshop was concluded with an interactive Q&A session.
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