As has been stated before, insurance contracts can be treated in bundles (of same types of contracts), not individually. The unification of standards has been essential and may actually substantially facilitate things, particularly for multinational companies. Also, the demands on the declared revenue to reflect the insurance coverage provided, excluding deposit components, are consistent with demands in other industries.
Moreover, the insurers’ books will better reflect their profitability and value of obligations as well as the effects that changes in market conditions have on both. Whilst this may not necessarily benefit the insurers themselves by providing them with clearer information on their businesses, because the disclosed information will not only be clear and revealing, but also comparable across different jurisdictions and sectors, the clarity with which capital markets view insurers will improve. This could make the insurance industry more attractive for the investors and facilitate the allocation of capital therein.
From a capital and performance management perspective, the industry will benefit from IFRS 17 as the standard finally enables to reconnect measurement models with risk and capital management. Nowadays it is seemingly irreconcilable that performance standards (local GAAP or US GAAP) foresee the measurement of insurance liabilities generally based on locked-in assumptions (or amortized costs) while Solvency II Market Value Balance Sheet (MVBS) calls for the measurement of liabilities based on prospective and stochastic valuation principles. It is somewhat puzzling that the misalignment of the project timelines of Solvency II and IFRS 17 has resulted in the development of two separate balance sheets with lots of reconciliation issues. This disconnection in measurement models and the absence of income statement under MVBS make it extremely challenging to explain capital changes nowadays.
IFRS 17 brings here the opportunity to reconcile capital and performance measurement. Going one step further, and making a somehow strong assumption that EIOPA would accept a more principle-based accounting framework as a basis for Solvency II, the use of an IFRS balance sheet as a basis for Solvency II would then lead to substantial alignment and clarity gains.
The more aligned level of information will finally facilitate the work of regulators, enabling them to take timelier and better informed actions.