New accounting standard ‘has minimal’ impact
General insurers are less affected than their life counterparts by the new accounting standard IFRS 9, which took effect at the start of this year, according to Fitch Ratings.
There will be a “moderate increase in volatility of investment income”, but the overall impact is likely to be manageable because the bulk of insurers’ investment portfolios are fixed-income-type securities.
The International Accounting Standards Boards introduced IFRS 9 in 2014 to replace IAS 39.
Financial assets and liabilities are now measured at fair value as a starting point, and gains or losses treated as fair value through profit and loss.
“The impact on the income statements of life insurers is likely to be greater, due to their higher exposure to non-fixed-income investments compared with non-life insurers,” the ratings agency says.
“Non-life insurers have simpler, lower-yielding and highly liquid investment portfolios in short-term instruments to match their short-tail liabilities.
“Therefore, the impact of IFRS 9 on their financial statements is likely to be minimal, because asset liability management is less crucial.”