AM Best does not expect the commencement of new accounting rule IFRS 17 on January 1 next year to immediately have a direct impact on the ratings of insurers and reinsurers it covers, the rating agency says, as it outlines how it is preparing for the incoming standard.

The rating agency says it will continue to have an economic view of (re)insurers’ balance sheets to cater for different reporting standards across jurisdictions.

“Consistency and comparability with financial metrics calculated under other existing reporting standards, will be a key objective when analysing (re)insurers that report under the IFRS 17 standard,” AM Best said.

“Nevertheless new insights can emerge over time and behavioural changes can occur which might affect ratings. Some of these insights may become attributable to IFRS 17.”

International Financial Reporting Standard 17 (IFRS 17),  one of the most significant revamps made to insurance accounting in more than 20 years, was issued in May 2017 by the International Accounting Standards Board.

It replaces IFRS 4, an interim measure that resulted in insurers using different accounting standards.

When  IFRS 17 is  implemented, insurance contracts will be accounted for in a consistent manner globally, making it easier to compare performance.

In Australia, the  new standard is issued as AASB 17 by  the Australian Accounting Standards Board.

AM Best says it anticipates that industry decisions on key performance indicators, along with other aspects of IFRS 17 implementation, will evolve.

“It may well take two or three years of experience after the effective date for practice to settle,” the rating agency said.