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UK endorses IFRS 17

Author: ICAEW Insights

Published: 17 May 2022

The new standard is expected to provide greater clarity and comparability in the UK insurance market, which is one of the largest in the world.

The UK Endorsement Board (UKEB) has unanimously approved for adoption IFRS 17 Insurance Contracts, paving the way for greater financial clarity, comparability and consistency in accounting for insurance contracts.

The impact of IFRS 17 will differ depending on the nature of the insurer and the products it sells. Non-life insurers are not expected to be affected as much as life insurers due to product lengths. Some insurers may see a fall in profits and greater volatility in their accounts from 2023 when the new requirements take effect.

Chair of the UKEB Pauline Wallace said: “The UKEB has carefully considered the statutory criteria for adopting new IFRS for use in the UK and is satisfied that IFRS 17 meets them all. Overall, the UKEB considers that the adoption of IFRS 17 will lead to substantial improvements in financial reporting for insurance contracts and that its application will be conducive to the long term public good in the UK.”

According to the UKEB analysis, aggregate one-off IFRS 17 implementation costs for all UK insurance companies adopting IFRS 17 are estimated at approximately £1.18 billion.

“While these costs are significant, they represent 1% or less of relevant companies’ average annual Gross Written Premiums over the last five years,” the UKEB said.

IFRS 17 is more than two decades in the making and will be the first truly international accounting standard for insurance contracts. Under the new regime all insurers will have to account for insurance contracts in the same way, replacing the myriad methods in use around the world.

IFRS 17’s forerunner - IFRS 4 – was always seen as a “stop-gap” measure allowing insurers to use their own domestic accounting standard, if one existed, resulting in little global comparability or consistency among insurers, or with companies in other sectors. Even within an insurance group accounting treatment can differ depending on where the product is sold.

The UKEB, which is responsible for endorsement and adoption of international accounting standards in the UK following the UK’s departure from the EU, said it would review the impact of the standard’s adoption and publish its conclusions in January 2028.

The UK has one of the largest insurance markets in the world, and the largest in Europe. It is a key component of the British economy, underscoring the importance of ensuring a transparent financial picture of the industry.

Dr Nigel Sleigh-Johnson, ICAEW’s Director, Audit & Corporate Reporting, commented:

‘A high-quality global accounting standard in this area is long over-due. IFRS 17 has been under development for a very long time, and we welcome the UKEB’s landmark conclusion – after extensive analysis - that all of the UK endorsement criteria have been met in this case. We also acknowledge the extensive outreach undertaken by the UKEB and its staff during the assessment of the complex requirements of the standard.’ 

• You can find out more about IFRS 17 here

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