The International Accounting Standards Board (IASB) issued a standard for insurance contracts to help investors and others better understand insurers' risks exposure, profitability, and financial position.
IFRS 17, Insurance Contracts, replaces IFRS 4, which was implemented in 2004 as an interim standard intended to limit changes to existing insurance accounting practices. The changes were deemed necessary because the interim standard allowed insurers to use different accounting policies to measure similar insurance contracts written in different countries. This led to many different approaches that made it difficult for investors to compare the financial performance of otherwise similar companies.
The new standard creates one model for all insurance contracts in all IFRS jurisdictions, aiming to provide transparent reporting about a company's financial position and risk.
The new standard requires all insurance contracts to be accounted for in a consistent manner meant to benefit both investors and insurance companies, solving the comparison problems stemming from IFRS 4. Current values—instead of historical costs—will be used to account for insurance obligations, and the information will be regularly updated to provide more useful information to financial statement users.
IFRS 17 goes into effect Jan. 1, 2021, and early application is permitted.
Because of the range of accounting methods in use, some countries will be affected more than others by the new standard. The IASB will support those implementing IFRS 17, including by establishing a Transition Resource Group.