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The Bruce Column — Comparability is the goal of the new insurance standard

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18 May 2017

It has been years in the making, but a new insurance standard is now published. And as our resident columnist Robert Bruce explains it should shed light on the financial results of a sector which was previously hard to understand.

The world of insurance has always been a difficult one for financial reporting. People talked of patchwork quilts and of black boxes. No one could quite see the proper picture, and comparability was difficult. All this dated back to the dawn of time, or at least twenty years ago. Everything had been stitched together or grandfathered into what was IFRS 4. Now we have IFRS 17. And as from accounting periods starting from 1 January 2021 that is what the industry, and investors, will have to deal with. Insurers will put old practices aside and apply the same rules and so this should be an aid to comparability. Whereas the old system was most definitely an obstacle to comparability.

Some have argued that investors have required a premium on their return, compared to investing in non-insurers, for the complexity of the insurance sector of which the financial reporting has not helped. Different national accounting practices have probably contributed to the premium demanded by international investors. A single set of rules should help reprice the premium. Complexity will remain of course; insurance is not a simple business given it relies on judging the future. And the degree of comparability will depend partly on the quality of the disclosures, of which there will be many. It is now not just about measurement on the balance sheet but the package of information, including disclosures, to enable investors to make informed investment choices.

It will be a big change to implement. 2021 sounds like some way away. But with the comparative figures in 2020 needing restatement it is not so far off. But early planning for what is to come will make life easier in the long-term. Rather like insurance.

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