PHILLIMON MHLANGA
Zimbabwe’s insurance industry has set up a working committee to ensure that the implementation of the new reporting rules set by the International Accounting Standard Board (IASB) is successful, Business Times can report.
The committee is made up of officials from the sector regulator, the Insurance and Pensions Commission (IPEC), industry players and the Institute of Chartered Accountants in Zimbabwe (ICAZ).
IPEC’s director, actuarial, Robson Mutangadura, said the committee would spearhead the implementation of the International Financial Reporting Standard (IFRS) 17 which are expected to shake the insurance sector and will enforce more transparency in the multi-billion-dollar sector.
“We are in the process of implementing IFRS 17 model. We are planning to do dry-runs in 2022 and will do a parallel run in 2023,” Mutangadura said.
He said there were currently a number of challenges including lack of understanding of the IFRS 17 standard, lack of knowledge and lack of certainty over interpretation.
Mutangadura suggested that there was a need for training of stakeholders, including board members and management.
Business Times can report that ICAZ is designing a training programme to insurance entities, which will be tailor made for the Zimbabwe insurance industry.
Training is expected to commence in mid-June this year.
ICAZ chief executive officer, Gloria Zvaravanhu said: “As ICAZ we are available for the implementation of the IFRS standard, so that it is made as simple as possible. It’s quite a transformational standard. We have to do a lot to ensure we are ready.”
Initially, IFRS 17 was scheduled to take effect in January 2021. The implementation date was deferred to January 2022 after several jurisdictions indicated that the new rules were complex. The rules were released by the IASB in 2017 after nearly 20 years of discussions.
The new rules have been deferred again and will now come into force in 2023, replacing IFRS 4 insurance contracts and related interpretations, which was transitory and not developed to comprehensively deal with insurance reporting.
Countries, however, can choose to apply the new standards earlier.
IFRS 17 will require insurance liabilities to be measured at a current fulfilment value and provides a more uniform measurement and presentation approach for all insurance contracts.
For the first time, the standard requires insurers to follow IASB rules.
Experts said the global accounting standard has a wide implication for all insurers, policyholders, investors and other related parties including actuaries, banks and the stock market, among others.
It is estimated that Zimbabwe insurers control more than 60% of funds invested on the Zimbabwe Stock Exchange.
IFRS 17, if implemented well, is expected to make the sector attractive to investors, a situation which will impact positively to economic development.
IFRS 17 will change the way insurance companies report income earned, whereby investment income, money put in stocks and government paper as invested will not be counted in the overall profits of the insurer, experts indicated.
The new regulations would standardise the way insurers report their accounts, something which may help them raise capital from the markets as well as benefiting consumers and investors.
The deviation from IFRS 4, experts said, could have a major impact on accounting professionals.
Under the new IFRS 17 regime, insurance companies will be required to maintain a current balance sheet that measures insurance contract liabilities as well as statement of profit over the period covered.
They will be required to identify portfolios of insurance contracts, which comprise contracts that are subject to similar risks and are managed together.
Each portfolio of insurance contracts issued shall be divided into a minimum of three groups namely those contracts that are onerous at initial recognition, those that at initial recognition have no significant possibility of becoming onerous subsequently, if any and the remaining contracts in the portfolio, if any.
Under the new rule, an insurance company will not be permitted to include contracts issued more than one year apart in the same group.
In addition, if a portfolio would fall into different groups because the law or regulation constrains the insurer’s practical ability to set a different price or level of benefits for policyholders with different characteristics, the insurance company may include those contracts in the same group.
Recently, IPEC commissioner, Grace Muradzikwa said the insurance and pensions regulator was seized with the matter as there are many pitfalls associated with the new rules.
She said Zimbabwe’s insurance industry regulator will vigorously spearhead awareness programmes to prepare the local players.
Muradzikwa said it was critical for local insurance companies to start considering their existing contract arrangements and look to make necessary changes to their internal compliance processes to meet the technical provisions of IFRS 17.
This will enable them to manage risk and this will be an opportunity to make efficiency gains, if managed well.
Historically, Zimbabwe’s insurance sector has been fraught with lack of consumer protection, transparency and there have been very few disclosures for investors to make wise investment decisions. This has encouraged a serious lack of integrity in the insurance market, resulting in policyholders being left exposed.
The new rules are far-reaching in that they dictate how insurance firms should report their financial statements.
This will boost transparency, help investors and policyholders. Apart from that, they are expected to provide greater clarity to investors and analysts as well as policyholders.
For the global consumers and potential customers, the global accounting standards might help consumers make more informed decisions about their insurance purchases, especially when costs vary significantly across borders.
Investors might use IFRS 17 to bolster their portfolios and choose investments more wisely. Every insurer is certain to see an impact on its reported numbers in one way or the other.
IFRS 17 rules require all insurers covered by the IFRS regulations to produce their accounts in the same way, unlike now where insurers are reporting differently.
Insurance contracts under the IFRS 17, which are considered the global accounting standards, set out requirements that insurers should apply in reporting information about the contracts they issue and reinsurance contracts they hold.
This is expected to shake up Zimbabwe’s insurance sector.
Experts told Business Times this week that the new rules will shake up the insurance industry. IPEC has warned of pitfalls, and is spearheading awareness to ready firms because this could be a catalyst for radical transformation to the way insurance entities report their financials.
It will fundamentally change the accounting for all entities that issue contracts within the scope of the standard for insurance contracts from life to auto to home and health as well as reinsurance.
They said IFRS 17 will provide standardisation right across jurisdictions and allows for comparability and provides investors, policy holders and other users of information with consistent information for all insurance contracts as well as new metrics for evaluating the performance of insurers.
Insurance revenue under IFRS 17 will be similar to earned premiums for non-life business.
Insurance revenue will be significantly different for all other contracts, including life and participating contracts.
