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Insurers' balance sheets become more transparent and comparable

With the recently published 2022 consolidated annual reports, exchange-listed insurers are saying goodbye to IFRS 4 and at the same time providing an initial outlook on how the transition to IFRS 17 will affect them.

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IFRS 17 ist der neue Bilanzierungsstandard für börsennotierte Unternehmen. 

Since the beginning of this year, exchange-listed companies have been applying the new international accounting standard IFRS 17. "The switch has been made. With IFRS 17, capital market-oriented insurers are placing their accounting on a globally uniform basis. Balance sheets will be more up-to-date, more transparent and more comparable", said GDV Chief Executive Officer Jörg Asmussen.

Arrival at destination after long journey

GDV is convinced of the need for holistic standards for the accounting of insurance contracts and the substantive completion of the principle-based IFRS framework. German insurers have therefore supported the completion of the global accounting standard from the outset and lobbied for its timely adoption in the EU. IFRS 17 replaces the interim standard IFRS 4, which has been applicable until now. The new accounting rules were drawn up by the International Accounting Standards Board (IASB) based in London.

IFRS 17 better reflects the business model

IFRS 17 is an accounting standard; nothing changes in the business model of companies. The new standard also has no impact on the regulatory capital requirements for companies - and thus on the security of customer deposits. However, IFRS 17 does provide better insight into the performance drivers of individual companies in the insurance business.

The most important lever here is transparency. Aggregated figures in the balance sheet and income statement are explained in detail through comprehensive information and detailed statements on the transition in the notes. Thus, the statements provide in-depth insight into insurers' sources of earnings. At the same time, the new standard increases the comparability of the financial statements of capital-market-oriented insurance companies. This applies both to each other, i.e. between insurers, and in comparisons between the industry and other sectors. With the new standard, companies are thus improving their overall position on the international capital markets.

Company-specific factors can be taken into account under IFRS 17

The new standard is principle-based. This means that explicit guard rails are provided within which companies can exercise various accounting options. In this way, company-specific realities can be adequately taken into account. The options exercised are reported in detail in the notes to the financial statements, ensuring that the necessary transparency is also provided in this respect. Furthermore, the new standard provides sufficient discretion. This makes it possible to provide a true and fair view of the financial position and performance of individual companies. This is the primary objective of IFRS accounting.

What is needed now above all is stability in the regulatory environment

The conversion of the accounting system constituted an enormous effort for the companies involved. What is needed now, above all, is stability in the regulatory environment so that companies, auditors and analysts can perform their respective tasks in this new accounting era. Companies are already providing a foretaste and first glimpse of the new accounting world in their 2022 financial reports. The implications of the transition to IFRS 17, which have been determined and tested for each individual company, have already been made transparent and quantified as much as possible.

The IASB will subject the efficacy of IFRS 17 to a review, the so-called “Post-Implementation Review” (PIR), in a few years. It will then be possible to evaluate in detail the extent to which the hopes and expectations associated with IFRS 17 have been fulfilled.

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