Analysts at Fitch Ratings have stated that the first public comments from Dutch insurer – ASR, on the implications of IFRS 17 support Fitch Ratings’ view that the new standard will not affect insurers’ business models in the near term.
The major European insurer said in an update last month that it does not plan to use IFRS 17 to “steer its business”, citing the inherent volatility of metrics calculated under the new accounting standard.
However, it will instead continue to focus on organic Solvency II capital creating, underlying business performance and existing segment-specific metrics, such as the non-life combined ratio.
With IFRS 17 due to take effect for accounting periods starting from 1st January 2023, Fitch have said that they expect that insurers, analysts and investors will need at least a couple of years to develop enough confidence in IFRS 17 to use it as a basis for decision-making. This is particularly due to the sensitivity of IFRS 17 metrics to the economic and demographic assumptions used in the underlying calculations.
Fitch also notes that it does not expect IFRS 17 to affects insurers’ business models, or their credit ratings.
The ratings agency said: “IFRS 17 should make insurers’ financial statements more transparent, and ultimately more consistent and comparable, but we believe it will take time for insurers’ calculation approaches to converge towards a market standard, with comparability compromised in the meantime.”
Furthermore, ASR highlighted in its update that comparability of IFRS 17 reporting will be dependent on the emergence of a standard approach for the discount curve to value future cash flows. It also addressed that it does not expect the market to settle on an IFRS 17 ‘operating result’ definition in time for the first set of IFRS 17 financial statements.
“Even in the longer term, we do not expect IFRS 17 to have a direct effect on insurers’ ratings as it will not change the risk structure or the economic profitability of insurance operations. However, it could have an indirect effect if it eventually leads some insurers to refine their strategies, business profiles or product designs, as these could lead to changes in risk profiles.”
Meanwhile, insurers have reported that there is still a huge amount of work to complete in order to successfully deliver IFRS 17 ahead of its 2023 deadline, according to a recent survey by WTW.
