S&P Global Ratings has warned most reinsurers will find it challenging to transit to International Financial Reporting Standards (IFRS) 17, the new accounting rule that is set to come into force on January 1 2023.

IFRS 17 – one of the biggest revamps made to insurance accounting in more than 20 years – requires reinsurers and insurers based outside of the US to restate their balance sheet comparatives with new key metrics.

While recent amendments to IFRS 17 have eliminated significant accounting mismatches for primary insurers that would have created risks for reinsurers, S&P believes the migration to the new rule remains a challenge for reinsurers.

“Most reinsurers aren’t ready for IFRS 17,” the ratings agency says in a report. “In our view, the accounting and risk management systems of reinsurers – as well as of primary insurers – are far from being IFRS 17 ready.

“Alongside the technical accounting challenges, the development of new key performance indicators and bringing important stakeholders, both internal and external, up to speed will be a major undertaking.

“That said, we currently do not foresee reinsurers modifying their prudent underwriting and investment risk appetite, or adjusting their capital management.”

S&P says the new rule is “a complete transformation” for insurers and reinsurers.

Once introduced, the framework might reveal new information, inviting novel ways to analyse performance, including profitability in a reinsurance transaction.

“Although we do not expect the accounting change to trigger rating actions, over the long term, we do expect the new key performance indicators to shape companies’ strategic asset allocation, dividend policy or reinsurance approach,” S&P says.