The standard setter has deferred the effective date for International Financial Reporting Standard (IFRS) 17 – Insurance Contracts – to annual periods beginning on or after 1 January 2022

This, the International Accounting Standards Board (IASB) said, was so that any amendments being explored would not disrupt its implementation.

“Together with the significant change that IFRS 17 will cause, this constitutes exceptional circumstances that justify the deferral,” the IASB said. Fourteen board members voted for the change.

IASB also chose to defer the expiry date for the temporary exemption to IFRS 9 in IFRS 4 by a year. All insurance entities must apply IFRS 9 for annual periods on or after 1 January 2022.

This more contentious deferral – which would mean some entities not applying the standard up to four years after all other entities – gained 13 votes.

IASB said, “Without the deferral there would be two sets of major accounting changes in a short period of time, resulting in significant cost and effort of the preparers of financial statements”.

Philippa Kelly, head of Financial Services at ICAEW, said, “Additional time will allow insurers and those working with insurers the time needed to ensure they have the technology required to effectively implement the standard available and in place.”

She said that insurance companies should make good use of the additional time to deliver on high quality implementation.

Alex Bertolotti, IFRS 17 leader at PwC said that some insurers have been lobbying for this for some time and others have been requesting clarification due to the costs of moving ahead.

He noted that the full impact of deferral “can only be fully assessed after reviewing potential changes to the standard which the IASB board will consider in December”.

“The additional time will help alleviate some risk from existing plans, however many companies still have a lot to do and cannot afford to press pause,” Bertolotti said.

“To stand still is to fall behind”, he added.

Francesco Nagari, global IFRS insurance leader at Deloitte, described the IFRS 17 deferral as a “parallel shift of the deferral in IFRS 9 mandatory adoption” that insurers will largely welcome.

A recent survey from the Big Four firm found that 90% of insurers were either “somewhat” or “very” confident at meeting the previous 2021 deadline, but there have still been recent calls to delay, he said.

“Substantial effort is already underway to implement the standards, with budgets in some instances expected to exceed €50m (£43.4m),” said Nagari.

While investors and regulators are eager for what IFRS 17 will bring, the additional time will allow for insurers to prepare, which Nagari said is a “reasonable compromise between the two stakeholder groups”.

The IASB said that the proposed deferral will be subject to public consultation, which is expected next year, and the board expects to discuss the merits of potential amendments during its December meeting.

Insurers implementing the International Accounting Standards Board (IASB)’s new IFRS 17 will find the process a major challenge due to the huge scale of the operation, according to Willis Towers Watson.

From 2021, insurers across the world will be expected to use the IFRS 17 reporting standard – the first global accounting standard for insurance contracts.

The current standard, IFRS 4, has allowed local Gaap to be used as a guide in each country, leading to little consistency across borders and among multinationals.

The big change under IFRS 17 will be to increase transparency, giving investors a clearer picture of the returns they can realistically expect on investments and the risks involved.

The new rules require companies to recognise profit when insurance services are delivered, rather than when premium payments are received, as well as to provide information about insurance contract profits that are expected to be recognised in the future.

Complying with the new accounting practices is expected to impact profit, equity and volatility, as well as reserving and financial reporting processes, actuarial models, technology systems and, potentially, executive compensation.

The IASB has warned that applying IFRS 17 will require many insurance companies to gather new information, employ or develop people with appropriate skills and make changes to their financial systems.

Companies are also expected to incur costs in educating staff, updating internal procedures and communicating changes in their reports to external parties. Such activities may involve significant time, effort and cost, the IASB said.

Insurance companies are also expected to continue incurring costs in applying IFRS 17 on an ongoing basis. These will mainly arise from gathering the necessary information to update assumptions for measuring insurance contracts on a current basis.

However, carriers with operations in multiple jurisdictions are expected to reduce costs by applying a globally consistent model for their contracts, which will replace the current country-by-country system.

In addition, the new standard will simplify the measurement of some short-term contracts, such as those with a coverage period of 12 months or less, while a carrier will be able to apply the new requirements to a group of contracts, rather than on a contract-by-contract basis.

And IFRS 17 does not apply to some common contracts issued by non-insurers, such as most product warranties.

Kamran Foroughi, director at Willis Towers Watson, said IFRS 17 was more than just an accounting change and would have a wide and significant impact on insurers’ operations.

“The big change under IFRS 17 will be more transparency,” for investors, he continued.

“However, it will take some time for investors to understand the new information.”

Martin Bradley, EY’s global insurance finance, risk and actuarial leader, called the new standard “the most significant change to insurance accounting requirements in 20 years”.

His colleague Kevin Griffith, EY’s global IFRS 17 accounting change lead, added: “While the standard will not become effective for a few years, the impact is likely to be felt much sooner by insurers.

“Investors are likely to ask for expected impacts ahead of the implementation date, and the decisions made by insurers at the date of transition to the new standard will have a significant impact on future profitability.”