IFRS for insurers

Insurers currently use a variety of different and largely inconsistent local approaches to measure the value of insurance contracts within their statutory financial statements. This is due to change.

The move to a harmonised International Financial Reporting Standard (IFRS) for insurance Contracts (IFRS Phase II) is gathering pace, with a new standard on the horizon. The International Accounting Standards Board (IASB) is expected to release an insurance standard by the end of 2011. This will apply to all insurers in jurisdictions reporting under IFRS and will introduce a single accounting standard that will apply to all insurance contracts on a consistent basis.

The new standard is expected to fundamentally change the accounting by insurers and other entities that issue contracts with insurance risk. Do you understand the commercial and technical challenges your organisation will face?

PwC has followed the standard's development since the IASB issued an exposure draft in July 2010. The proposals were the output of the IASB and the FASB's joint efforts to develop a single converged insurance standard. Staying close to developments, we have summarised the board's new proposals in Setting the standard: How to make the proposed insurance accounting standard more useful and provided a Practical guide to IFRS - Insurance contracts. These highlight the differing views of the IASB and the FASB, and points of agreement.

Insurers are also facing a shake-up in other key areas of financial reporting, including the basis for financial instrument measurement.

Synergies with Solvency II

A key focus of the continuing debate within Europe over IFRS for insurance contracts is how closely the basis of measurement will correspond to Solvency II. Alignment between IFRS and Solvency II would open up valuable synergies in data management, modelling and investor relations and enable companies to avoid the expense and disruption of 'digging up the road twice'.

Important developments

With market scrutiny and competition for capital having sharply increased in the wake of the financial crisis, the planned overhaul of insurance accounting could have a decisive impact on market valuation and investment, while presenting significant implementation challenges. Insurers are also facing a shake-up in other key areas of financial reporting, including the basis for financial instrument measurement. Read more about important developments in IFRS.