Insurance companies will have to alter their accounting practices.

Canadian insurers are well positioned to deal with the rising risks associated with IFRS 17.

by Staff

The insurance industry is facing the most significant change in its accounting rules in 20 years, says a new report by DBRS Morningstar.

The insurance industry is facing a major shift in accounting practices. Starting in 2023, new rules will be enforced. The implementation of this new standard, called IFRS 17, will be a major change for insurers.

“Extensive changes to IT systems, processes, and tools are integral components of IFRS 17 implementation and have the potential to increase operational risk in the short to medium term, unless properly managed and mitigated,” DBRS said in its report.

The new standard will also affect how much capital Canadian insurance companies need, and how they pay taxes.

There is a lot of confusion about the new rules, because they are vague. They can be interpreted in different ways by local regulators.

“In addition to changes to IT systems, processes, and tools, IFRS 17 introduces potential variations in how insurance companies interpret the standard as well as changes to key profit and volume metrics,” noted Nadja Dreff, senior vice-president, insurance, at DBRS Morningstar, in a release.

However, the report said Canadian insurance companies should be able to absorb the changing regulations without hurting their financial strength ratings, given their strong capital positions and risk management frameworks.

Additionally, the insurers rated by DBRS are already focusing on the transition to IFRS 17. They’ve already devoted significant resources to this. This will mitigate operational risk.

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