The impact of IFRS 17 on revenue and expense recognition of insurance companies

Abstract

Purpose: The purpose of this study is to assess and analyse the effect of IFRS 17 on revenue and expense recognition of insurance companies, as well as its effect on comparability of the financial statements through disclosures and KPIs. Design: The study employs a mix of quantitative and qualitative research. Quantitative research was done on the Insurance Companies’ revenue and expense figures for the financial year 2022 as originally reported under IFRS 4 and the restated figures under IFRS 17. Moreover, qualitative research was conducted through semi-structured interviews with Insurance Companies’ CFOs and/or other personnel who were heavily involved in the implementation. Findings: The findings indicate that Life Insurance Companies were more affected by IFRS 17 than Non-Life companies, particularly those using the General Measurement Model or Variable Fee Approach, due to their complexity and reliance on actuarial assistance. When it comes to disclosures, companies are heavily reliant on their auditor’s assistance to ensure they are fully compliant. Moreover, the Insurance Companies that were interviewed for this study have not yet identified suitable IFRS 17 KPI metrics due to the complexity of the standard. Conclusion: Based on the study’s findings, Insurance Companies should enhance their understanding of the actuarial aspects of IFRS 17 to help bridge the knowledge gap between accounting and actuarial functions. Additionally, there is the need for greater systems automation to reduce manual errors, and stronger standardisation of interpretations and assumptions through regulator-issued guidance. Increased industry collaboration and benchmarking, particularly in smaller markets like Malta, would promote best practices and enhance market transparency. Value: The findings from this dissertation are valuable for Maltese Insurance Companies, stakeholders, academics, and others interested in insurance accounting to better understand the implications of IFRS 17 on the Maltese Insurance market after the first year of its adoption. It adds value by examining the early implementation challenges, comparing revenue and expense figures under IFRS 17 and IFRS 4, and evaluating how the new standard has influenced the comparability and reliability of financial statements through disclosures and KPIs.