According to a new report from AM Best, the level of preparedness in the Middle East and North Africa (MENA) for IFRS 17 varies significantly by country and by insurer, ahead of the standards effective date of January 1st, 2023.
While several countries within the MENA region continue to report under local accounting standards, IFRS is the prevailing accounting regime and the implementation of IFRS 17 is expected to affect a significant proportion of insurers operating in the region.
The transition to IFRS 17 will be accompanied by considerable data and IT system requirements, significant changes to financial statement presentation, and the simultaneous adoption of IFRS 9, which all increase the complexity of the implementation and the importance of good preparedness.
According to a survey conducted last year by WTW, the implementation of IFRS 17 is expected to cost the global insurance industry as much as $20bn.
Moreover, the report highlights that the MENA region includes countries whose insurance markets and insurance regulatory bodies are at various stages of development and maturity.
The report reads: “In general, AM Best views companies operating in the region’s more mature regulatory environments as demonstrating greater readiness for IFRS 17. This is particularly the case for the region’s larger, market leading, insurers.”
Meanwhile, in markets where there has been less regulatory oversight and engagement on IFRS 17, AM Best states that it has observed a less consistent picture in the level of preparedness among market participants. In these markets, the level of preparedness is largely market-driven with larger, more sophisticated, insurers leading the way.
The report also notes that diverse levels of preparation are being seen among smaller insurers operating in the region, which includes those in the generally more progressed markets.
However, further into the report AM Best states that it views few companies in the MENA region as “fully prepared” for the transition to IFRS 17. While many companies have progressed through the initial gap analyses and financial impact assessments, the proportion that have actually completed IFRS 17 dry runs or parallel runs is much lower, which implies that many implies that many insurers currently lack a reliable and accurate presentation of their financial on an IFRS 17 basis.
The report reads: “In AM Best’s opinion, having this view will be an important step in readying for the implementation of IFRS 17, informing business decisions and supporting the education of internal and external stakeholders.”
Furthermore, AM Best notes that The Premium Allocation Approach – a simpler method of measuring contracts than the General Measurement Model – is expected to be widely utilised across the region for qualifying products, which ultimately should provide support for the ease of transition to IFRS 17.
The ratings agency, however, does warn that a key risk for the MENA region related to IFRS 17 is the reliance upon third parties, which presents the risk of concentrating knowledge outside of the operating insurers, and creates a potential disconnect between internal management engagement and external consultant experience on the subject.’
Lastly, AM Best notes that general weakness in data quality is also another concern, given the increased data requirements of IFRS 17.
