Pressure is growing for a delay to controversial new accounting rules designed to revolutionise the way insurers report their results, with German insurer Munich Re the latest to call for a postponement.
The rules, known as IFRS 17, were unveiled earlier this year and are due to come into force in 2021. They are designed to make it easier for investors to compare insurance companies in different countries.
But insurers say changing their accounting systems will cost billions and that they need more time to put the complex new rules into action.
“For the preparers, IFRS 17 will be very expensive, and due to its complexity it will be difficult to understand for the public and the media,” said Jörg Schneider, Munich Re’s chief financial officer.
However he added that it would still be better than the current accounting system.
“In light of the necessary testing and potential refinement, a delay to IFRS 17 would be good. The more time we get to prepare, the higher the quality and consistency we can deliver.”
The call from Mr Schneider adds to a strong backlash against the rules in the UK. In the summer the chief executives of Aviva, Legal & General and Prudential wrote to the UK chancellor, Philip Hammond, to voice their dislike of the new regime.
“In its current form, IFRS 17 will add significant increased confusion, increased volatility, increased cost and increased complexity, hardly the ideal basis for an accounting standard which should provide understandable, relevant and reliable financial information,” they wrote, adding that: “Implementing IFRS 17 in the next couple of years is an unnecessary, costly and risky proposition which is against the interests of the UK.”
Investors are also concerned about the impact of the new rules. In a report published in October, BlackRock said it was concerned “the burdens associated with implementing the new rules under existing stretched timetables could outweigh the benefits” and said “policymakers could review the implementation deadline to ensure a smooth transition to the new standards”.
IFRS 17 has taken 20 years to develop, and is designed to replace the existing standard, IFRS 4, which allows for much more variation between countries. It will affect life insurers more than property and casualty insurers because profits from some long term contracts will have to be recognised over the life of the contract rather than upfront. The new rules could also make insurers’ results more volatile.
For insurers in the EU, the new regime comes hot on the heels of the Solvency II capital rules, which also took decades to develop and cost billions to put into practice.
Not all EU insurers oppose the new standard. Allianz, Europe’s biggest insurer by market capitalisation, is one of those in favour of IFRS 17. A spokesman said: “We welcome the new standard. We see some challenges in implementation but the new rules will create more transparency and reflect modern valuation methods.”
The insurer has even produced an animated video to explain how it all works.
Darrel Scott, a board member at the IFRS Foundation, the organisation behind the rules, said there were good reasons for pushing ahead with the current timetable.
“The quicker you can roll it out, the better it is for investors because the quicker they can apply the information,” he said. “We’ve had support from the investor side of the equation. You tend to hear that they want the information, and they are already asking for it.”
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