The Canadian Life and Health Insurance Association (CLHIA) has requested that the International Accounting Standards Board (IASB) delay by two years the implementation of the international standard on financial accounting of insurance contracts, IFRS 17.
A two-year delay would enable insurers to successfully implement IFRS 17 and avoid “undue implementation risk” that would be the result of it coming into effect in 2021, wrote Stephen Frank, President and CEO of the CLHIA in a letter sent Aug. 2 to Hans Hoogervorst, Chairman of the IASB.
A Canadian industry delegation recently met with Hoogervorst in London to discuss why the Canadian industry believes IFRS 17 should be delayed beyond the Jan. 1, 2021 implementation date.
Insurers need more time than banks
The CLHIA says in its letter that insurers need more time to implement IFRS 17 than the banks needed when they implemented IFRS 9. Implemented in 2018, IFRS 9 specifies how banks classify and measure assets and liabilities. “The impacts on insurers from IFRS 17 are significantly more profound than the impacts from IFRS 9 were for the banks,” wrote Frank. “These cumulative impacts require more lead time and make the experience of banking with IFRS 9 less relevant for the IFRS 17 implementation.”
Frank wrote that, among other things, IFRS 17 will require insurers to modify systems, redesign financial statements and change key performance indicators. IFRS 17 will also affect other regulatory requirements, notably those related to financial liabilities that in general remained largely unchanged under IFRS 9.
Restating prior years
Another major difference for insurers with IFRS 17 and banks with IFRS 9 is that insurers must restate their results from prior years to provide comparable data, while the banks did not have to do so.
The CLHIA’s letter also mentioned various other major differences between the standards, including the need for federal tax law changes and the need for an impact study of IFRS 17 on Canada’s new life insurance capital adequacy testing regime (LICAT) introduced Jan. 1, 2018.
A decision by year end
The CLHIA is requesting that Hoogervorst announce a delay by year-end 2018 at the latest. An announcement after this may result in “inefficiencies in processes and use of resources,” wrote Frank in the letter. Insurers expect 2019 to be a very busy year in moving towards IFRS 17 if the two-year delay is not granted. This is “due to a very compressed and intense work effort on many fronts,” says the letter.