Accounting standards, IFRS9 or IFRS17, unlikely to impact insurers’ strategic asset allocation “too significantly,” says JP Morgan in a new note.
In its latest Love Actuary report, JP Morgan analysts examine IFRS9, a new accounting standard for assets that insurers are applying in parallel with IFRS17. It looks at how IFRS9 works, classification/measurement of financial investments, and how it interacts with the market value approach to measure insurance liabilities under IFRS17.
“We believe IFRS9 has the capacity to limit P&L volatility in the way it interacts with IFRS17,” analysts said.
IFRS9 replaced IAS39 from January 2018. It specifies the new accounting rules for the classification, measurement and impairment of financial instruments.
The banking and diversified financials sectors have already implemented IFRS9; however, insurers have had the option to defer the adoption of IFRS9 to align IFRS17 implementation, which came into effect from January 2023.
“European insurers have adopted their asset allocation strategy to optimise economic returns on capital, to meet regulatory capital requirements and to gain asset diversification benefits under Solvency II regime,” analysts noted.
Zurich, Sampo, Swiss Re, Just Group and Phoenix has the highest total risk, while Allianz, General, NN Group, Munich Re and Beazley has the lowest total risk, according to the JP Morgan’s Risk Quality Score report.
As the graph below shows, the analysts expect Solvency II position for European reinsurers’ Swiss Re, Zurich and Munich Re the strongest in 2023, while it estimated Beazley, Direct Line and Admiral the weakest solvency.
Although the timeline for introducing the UK Solvency II reform is uncertain, it is categorized as part of the first batch of changes referred to as the Edinburgh reforms and is identified as “Solvency UK”.
“These rules will come into effect quickly after legislation is made and therefore could take effect during 2023, however, the full version of Solvency UK may not be in force until 2024,” the analysts said.
