Islamic insurers operating in the Gulf Cooperation Council (GCC) region are poised for continued growth in 2023, but the adoption of the International Financial Reporting Standard 17 (IFRS 17) is presenting significant challenges, according to S&P Global Ratings.
While the implementation is expected to usher in enhanced transparency and comparability, smaller and under-resourced players may struggle to update their internal processes and IT systems to meet the new standards.
S&P Global Ratings has highlighted that the transition to IFRS 17 will likely result in additional costs, time constraints, and operational hurdles for Islamic insurers in the GCC.
Despite this, the ratings agency anticipates that the overall credit ratings of these insurers will remain largely stable.
However, any major delays or inconsistencies in financial reporting could trigger negative rating actions in isolated cases, according to Emir Mujkic, a credit analyst at S&P Global Ratings.
“While the implementation presents new challenges for all insurers in the region, including Islamic insurers, we expect our ratings on them to remain broadly stable,” Mujkic stated.
He added, “However, any significant implementation delays or inconsistencies in financial reporting standards could lead to negative rating actions in isolated cases.”
The adoption of IFRS 17 is aimed at bolstering transparency within the insurance industry, enabling easier identification and comparison of insurers’ profit generation and risk management strategies.
The new reporting standard is expected to bring about greater clarity and consistency in financial statements across the industry.
Despite the potential benefits, there are notable discrepancies in the level of preparedness among insurers across the GCC region.
Smaller and midsize Islamic insurers, in particular, face significant challenges due to their limited resources and capacity to implement IFRS 17 effectively, the report noted.
