IFRS 17 adds complexity to reinsurers’ financial reporting: AM Best

The International Financial Reporting Standards (IFRS) 17 is undergoing a significant accounting shift that necessitates changes in performance analysis within the reinsurance market, according to a recent AM Best report.

Implemented at the end of 2023, the IFRS 17 arrived during the hardest reinsurance markets in decades. The new standard has overhauled previous methods for measuring and reporting insurance results and introduced new terminology, presenting challenges for re/insurance companies as they prepare their financial statements.

Antonietta Iachetta, senior financial analyst, AM Best, explained, “It alters the way users of financial statements—whether policyholders or investors—understand, interpret, and compare these new statements.”

Traditionally, the reinsurance industry assessed performance using metrics such as combined ratios, return on revenue, and return on equity. While these metrics remain relevant under IFRS 17, they are not directly comparable to those reported under U.S. GAAP.

This shift impairs the ability to compare underwriting performance based on claims and expenses, particularly for reinsurers compared to the direct market. For example, companies no longer report gross premiums written; instead, the top line is now presented as insurance service revenue.

Dan Hofmeister, associate director, AM Best, noted, “In past years, IFRS 4 and U.S. GAAP had been compared against one another and even consolidated into composites. Some may attempt to consolidate and compare IFRS 17 and U.S. GAAP financial statements but doing so will very likely result in distorting what the numbers are really telling us.”

Overall profitability is not expected to change significantly under IFRS 17, although timing can differ significantly under the new approach, particularly for life reinsurers.

“Under the new standard, the expectation is that as the insurance service is provided over time, earnings will be recognized in the income statement, which is expected to produce a more stable earnings trend that is more representative of an underlying run rate,” Hofmeister concluded.

This website states: The content on this site is sourced from the internet. If there is any infringement, please contact us and we will handle it promptly.