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New accounting rule 'gives more transparency': EY

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More financial details over how an insurer performed can be expected when the International Accounting Standards Board’s (IASB) new IFRS 17 rule kicks in, according to global audit firm EY.

The IASB has proposed to delay the start date for the standard by a year to January 1 2022 after insurers globally, including in Australia, asked for a longer transition period.

IFRS 17 is one of the most significant changes to insurance accounting requirements in more than 20 years.

It requires all insurance contracts to be accounted for in a consistent manner, making it easier to compare performance across international markets.

“It’s a pretty significant change to what insurers do today,” UK-based EY Global IFRS 17 Leader Kevin Griffith told insuranceNEWS.com.au.

“At the moment, the existing standard is very much country specific. IFRS17 is likely to give you more transparency to how insurers have performed, how their reserves that they made last year ended up being sufficient or not.”

A new item called insurance service revenue will take the place of premium revenue in profit and loss (P&L) statements, EY says.

Mr Griffith says the new item is “kind of equivalent to gross earned premium number”.

Investors or analysts looking for the usual items such as gross written premium and premium ceded would have to look for it in the disclosure section or insurers may also decide to provide the information separately.

“The reason that it’s changed is because it is trying to get it more in line with other industries. The concept of revenue is something that other industries have had for some time and insurance has always been different…people might take some time to get used to it,” Mr Griffith says.

Sydney-based EY Partner Brendan Counsell says the standard will show “more explicitly and transparently” the insurer’s business including the different products and portfolios.

“That means you will be able to…identify the problematical loss-making books of business where you perhaps may not have been able to see that previously,” he told insuranceNEWS.com.au.

Locally the rule is issued as AASB 17 by the Australian Accounting Standards Board.