The biggest changes to accounting standards in 20 years may produce immense volatility in insurer results, S&P Global warns.

Under the current International Financial Reporting Standards, an insurer’s assets are based on market value – what the market says they are worth – but liabilities are based on book value: how they are recorded in the company’s financial accounts.

New accounting standards – to be introduced in 2021 – will remove this discrepancy and value both assets and liabilities according to market value.

The change will improve financial transparency, but may cause volatility in insurers’ results, S&P says. Development of key performance indicators, disclosure and communication is a significant and expensive challenge for insurers.

S&P expects insurers to increase their capital buffers, to prevent difficulties raising capital.

Insurers should start managing the transition through increased external communication, so investors and other stakeholders accept it, the ratings agency says.