To push the insurance industry to a global pedestal, NAICOM recently directed players to migrate from IFRS 4 to IFRS 17. However, to actualize this goal is a huge challenge, writes Ebere Nwoji
Insurance industry regulator, the National Insurance Commission (NAICOM), recently inaugurated the Nigerian Actuarial Society Discount Rate Committee (NAS-DRC) charging it with the responsibility of ensuring that it fast tracked the implementation of the International Financial Reporting Standards (IFRS) migration from 4 to 17.
This is in addition to its responsibility of addressing the insurance industry challenges and promoting global accounting standards. No doubt, the committee’s inauguration was part of its efforts to ensure seemless migration from IFRS 4 to IFRS17 financial reporting model at the appointed time.
Going by NAICOM’s plan, insurance firms are to submit their 2022 report based on IFRS 17 model of reporting.
At the inauguration ceremony, Commissioner for Insurance, Mr Sunday Olorundare Thomas, had said that the NAS-DRC was established to support the determination of standardised discount rate factors for use by the insurance industry and other stakeholders in the financial services sector and to help the implementation of the International Financial Reporting Standard (IFRS 17) for underwriting companies in the insurance sector.
He emphasised the crucial role of actuaries in implementing IFRS 17 and the need for a credible, prudent, consistent, and sustainable discount rate that was not subject to manipulation by different stakeholders.
Before now, Thomas had at a forum of insurance directors in Lagos late last year emphasised that there was no going back on the implementation of IFRS 17 in insurance industry, effective from January 1, 2023.
Situation in the market
Contrary to the commissioner for insurance’s stance, feelers from the industry revealed that the operators are not ready for IFRS implementation is this year. Also, there are doubts as to whether the industry is actually going to implement and migrate to the IFRS 17.
The doubts arose because aside the deliberate efforts being made by NAICOM towards the migration, the level of preparedness of insurance firms themselves and other stakeholders in the new financial reporting system is much below expectation.
THISDAY findings reveal that other stakeholders in the insurance industry that are supposed to render ancillary services to the industry to ensure smooth implementation of the new finance reporting model are far from understanding the IFRS working system.
NAICOM’s Roadmap
But the commission seems to be much more prepared compare with other stakeholder who seem to be foot dragging. Some operators have alleged that NAICOM has vague understanding of the new model of financial reporting.
The commission said in its efforts to get insurance firms ready for the new finance reporting model, it had set up sub-working groups to facilitate the migration.
Aside this, the commission had created a road map for the IFRS implementation, thus charging insurance firms to conduct awareness training and capacity building workshops,set up project groups and meeting committee, perform financial and operational impact assessment, design project implementation and covering technical, financial and operational impact assessment.
They are also to put up project implementation update and project status report and send same to NAICOM.
They are also to determine desired system landscape, tackle issues identified during the impact assessment as well as design actuarial and financial target operating model and execute plan implementation.The insurers are also required to perform resource allocation, submit quarterly project status report to NAICOM and educate stakeholders and conduct core training on IFRS.
They are to implement new processes and system, implement new accounting policies choices and performance financial statements, etc.
Experts’ view
Meanwhile, experts said the Federal Inland Revenue Service(FIRS) has important role to play in the migration because the present tax payment system by insurance firms is not compatible with the IFRS system.
According to the experts, FIRS needs to amend its tax laws to suit the IFRS system.
The expert said with IFRS system, government cannot generate as much revenue as it used to generate from insurance industry before.
The experts also said with IFRS 17 implementation, organisations need a lot of data which they will use to run their cash flow and this as we know is one of the problems of insurance sector although stakeholders are making efforts in this regard.
The experts further said with migration to IFRS 17, organisations would pay heavily on new software developments, especially with the current high exchange rate, emphasizing that the insurance companies would rely on western market for new softwares for the new model, since Nigerian software developers are not yet conversant with the model.
Insurers’ level of preparedness
When contacted, leading industry player, Leadway Assurance said it has not adopted IFRS 17 but has covered some of the road map, adding that it was already on course towards the implementation of the lFRS 17.
It said IFRS 17 (previously known as IFRS 4 Phase II) was an International Financial Reporting Standard developed by the International Accounting Standards Board (IASB) providing new standards for reporting profit emergence from insurance contracts, scheduled to take effect from January 1, 2023.
Speaking on “Navigating the New Financial Reporting Standard,” at a one-day workshop organised by Leadway Assurance for members of the Nigerian Association of Insurance and Pension Editors (NAIPE) in Lagos, Mr. Raphael Akomolede, of Finance Department of Leadway Assurance gave insights on the position of his company regarding the implementation of the IFRS 17.
He said the company has completed solution design which takes care of Gap Analysis, Financial and Operational Impact Assessment; Designed Future State of Finance Process/Technology Gap Analysis; Development, Documentation and Review of Target Operating Model; Prepared Technical documents and Reviews and Vendor Selection for IFRS 17.
He said presently, the relevant departments of the company were working simultaneously on system testing and implementation (pre and post); review and produce 2021 and 2022 Financial positions; produce interim IFRS 17 compliant financial statements including transition disclosure.
He said the IFRS 17 replaces the IFRS 4 – an interim standard that allows insurers to use local Generally Accepted Accounting Principles (GAAP) to measure insurance contracts;
He pointed out its weaknesses as no single way to account for insurance contracts; existing accounting makes it hard for investors to see which groups of contracts are profit-making and which are not.
The impact of IFRS 17, according to him, include improved comparability for the first time; relevant and updated measurement of insurance contract liabilities; a more intuitive presentation of financial performance and position; enhanced disclosure and transparency and a clear distinguishing of insurance activities from investment activities.
Also spokesman of Sovereign Trust Insurance plc, Mr Segun Bankole said his company was also on course for the migration.
He said arrangement had been made for the new software that would drive the migration.
He however lamented that insurance firms would spend a lot in purchasing the software in the face of high exchange rate.
Other insurance firms spoken said they were on course but their level of compliance is uncertain.
Experts’ views
But accounting experts said insurers reasoning along this line are talking out of ignorance, adding that knowledge gap in IFRS reporting was problem among some of the insurance sector managers most of who were more interested in turnover and quantum of premium generated rather than proper accounting and finance reporting system.
The experts said to have good knowledge of the workings of the IFRS17, which is a global reporting standard used in virtually all insurance markets across the globe, Nigerian insurance chief executives and even the regulator needed to seriously engage their workforce in intensive training on the IFRS17.
NAICOM had at a recent meeting with Directors of various insurance firms in Lagos said that insurance managers should submit their 2022 annual report based on IFRS4 but that their unaudited report for first quarter 2023 should be based on IFRS17.
Accounting experts said IFRS 17 is an International Financial Reporting Standard that replaces IFRS 4 accounting for insurance contracts and has an effective date of January 1, 2023.
According to them, IFRS 17 insurance contracts is a complete overhaul of accounting system for insurance contracts, with new requirements for data and processes that impact teams across the organisation, including actuarial, accounting, and IT. The IFRS 17 insurance accounting standard according to accountants establishes the principles for the recognition, measurement, presentation, and disclosure of insurance contracts.
Its objective is to ensure that an entity provides relevant information that faithfully represents those contracts.
Deloitte’s view
At the inauguration of the Insurance Industry Financial Reporting Working Group (IIFRWG), Finance Expert, Oduware Uwadiae, explained that the IFRS17 if successfully implemented would make such a difference in insurance industry.
According to him, the IFRS is looking at the risk on the entire contract and also the contract to the last mile.
He said the current standard used by insurers in their finance reporting only looked at the risk as at today, what risk insurers are having today but that the new standard was going to look at the entire risk from now till the end of the contract.
He said it was such a model that ensures that if an insurer signed a contract today and it was going to expire in the next six years, the insurer had to measure his risk from the date of the commencement of the contract.
Also speaking, a fellow of the Institute of Chartered Accountants of Nigeria(ICAN) and a management staff of Financial Markets Dealers Quotations (FMDQ), Mr Ebenezer Nwoji, said a major objective of the IFRS 17 is to standardise insurance accounting globally to help users of accounts make sensible comparisons between companies, their performance, their current financial position and risk exposure.
He said the benefits of IFRS is that it increases transparency and comparability of insurers’ financial statements, ensures risk-sensitive measurement of insurance obligations to ensure it better reflects economic reality.
He also said IFRS 17 which is released by the International Accounting Standard Board establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard.
