Reinsurers should brace for hurdles in transition to IFRS 17: S&P

The transition to International Financial Reporting Standards (IFRS) 17 will be a major challenge for reinsurers and they should brace themselves for accounting hurdles as well as ratings impact, S&P Global Ratings said in its latest report.

In June 2020, the International Accounting Standards Board published its final amendments to IFRS 17, addressing issues for primary insurers regarding their purchase of reinsurance. These amendments dissolved some significant accounting mismatches between market value assets and book value liabilities, which would have created risks for reinsurers.

The implementation of IFRS 17, effective as of January 1, 2023, will require insurers and reinsurers globally, excluding those based in the US, to restate their balance sheet comparatives with new key metrics.

S&P believes that despite the amendments the transition to IFRS 17 will be a major challenge for reinsurers and users of their financial reporting.

"Reinsurers are likely to be up against technical accounting challenges," it said. "They'll also have to develop new key performance indicators (KPIs) and bring important stakeholders, both internal and external, up to speed."

The agency warned that "the new KPIs could affect reinsurers' risk appetite and bring about shifts in business and financial strategies that could, in the long term, have a ratings impact".

In its report, 'Reinsurers And IFRS 17: Getting Balance Sheets Ready And On Time', S&P stated that it expects pending updates to GAAP to somewhat improve the comparability between those standards and IFRS 17, however, the differences will remain.