Accounting standard IFRS 17 highlights how low interest rates hurt insurers: S&P

Accounting standard IFRS 17 is more realistic and consistent than the standard it replaces, IFRS 4, and will show how lower interest rates are hurting insurers.

That’s the view of ratings agency S&P. “The new standard will give a more realistic, economic view of the balance sheet and more clearly represent the economics underlying the insurance industry,” said the agency. One key issue for insurers in recent years has been lower interest rates, which have affected insurers’ investments, especially in bonds.

However, S&P warned that comparability between insurers reporting under IFRS 17 and those reporting under local or US generally accepted accounting principles (GAAP) could diminish. It added: “The proposed changes to the balance sheet could also reduce transparency by removing information on credit risk.”

S&P said it was concerned about the loss of clarity regarding gross receivables and payables. For example, the shortening of the balance sheet being proposed could lead to a loss of some credit risk information.

IFRS 17 is due to be implemented from January, 2022.

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