Experts say the disclosures under the new guidelines will provide investors with more insights into insurers’ financial health and make it easier to compare entities.
Kenya has a total of 51 insurance firms with 25 doing general insurance, 14 underwriting life insurance and a dozen both life and non-life.
The Actuarial Society of Kenya (Task), a lobby of actuaries, has advised Nairobi to begin adopting IFRS 17 next January given the complex nature of the rules.
Kenya’s insurance industry faces a fresh round of mergers and acquisitions under new accounting rules that require underwriters to make disclosures on sources of earnings, cash flows, impairment provisioning, and fraud.
Experts say the disclosures under the new guidelines — technically referred to as International Financial Reporting Standard (IFRS) 17 to come into force January 2021 — will provide investors with more insights into insurers’ financial health and make it easier to compare entities.
There has been no common global insurance accounting standard, leading to different treatment of premium income, investment earnings, future cash flows and adjusting of risk by underwriters.
“Greater comparability could facilitate merger and acquisition activity, encourage greater competition for investment capital, and help gain the trust of investors,” said Alex Mbai, an audit partner at KPMG. “There will be increased transparency about the profitability of new and in-force business which will give users more insight into an insurer’s financial health than ever before.”
Some of the highlights of IFRS 17 is the separate presentation of underwriting and finance results, providing more transparency on an insurer’s sources of profits and quality of earnings. Furthermore, premium volumes will no longer drive the ‘top line,’ with investment components and cash received are no longer considered as revenue. The new rules do not allow for day one profit, as recognition of profit will be over the period the insurance contract is provided.
“Increased transparency about the profitability of new and in-force business will give them more insight into an insurer’s financial health than at present,” said Mr Mbai.
Kenya has a total of 51 insurance firms with 25 doing general insurance, 14 underwriting life insurance and a dozen both life and non-life.
The Actuarial Society of Kenya (Task), a lobby of actuaries, has advised Nairobi to begin adopting IFRS 17 next January given the complex nature of the rules.
“IFRS 17 is likely to be very expensive and intense to implement. These new standards, together with the pressures of risk-based capital are very likely to make some insurance firms consider strategic mergers or other partnership, to improve cost efficiencies through scale,” said Gauri Shah, the IFRS working party team leader at Task.
The Insurance Regulatory Authority has directed insurers to implement IFRS 17 early rather than taking a wait-and-see approach.
“We are encouraging firms to familiarise with the IFRS changes and assess the impact to enhance smooth transition. Early adoption is also allowed,” IRA acting chief executive Godfrey Kiptum said in an interview.
