With a good number of insurance firms yet to tidy their books despite the December 31, 2023 deadline given to them to migrate from IFRS 4 to 17, players are apprehensive as to what action NAICOM will take, writes Ebere Nwoji
A few months ago, the National Insurance Commission (NAICOM) mandated all insurance firms to upgrade their financial reporting model by migrating from IFRS4 to IFRS17.
The commission gave December 31 2023 as deadline for full compliance.
Meaning that from that period insurance firms should cease from filing their financial reports based on IFRS 4 model and migrate to IFR17 model.
The December 31 2023 has come and gone but some insurance firms are yet to comply with the regulator’s directive, raising the question on whether the regulator will instantly raise its punitive hammer or give period of grace.
Though some firms have complied, a good number of players fall within the category of laggards in carrying out the directive; although none of them owned up to have failed in this regard, while a few operators said they are on course.
As at September 2023, when THISDAY surveyed the level of preparedness of operators towards meeting the deadline, it was discovered that while all operating firms were dusting their tables and financial books to close the chapter on IFRS4 finance reporting model and migrate to IFRIS17 model, in practical reality, some companies have not really shown signs of seriousness to meet the deadline; though they were optimistic that they would do.
Now the deadline has come and gone but the picture portrayed by many operators is similar to what happened in 2012, when the IFRIS4 was introduced. Indeed, checks by THISDAY on how the management of various firms have fared in the transition show that some firms were able to get it right, having sent their employees to countries like Europe and other western markets for training on the new model of finance reporting, while some maintained their conservative stance, relying on self help effort.
Underwriting firms like Sovereign Trust Insurance, Leadway, AIICO, among others said they are good to go on the transition and migration process.
On the other hand, a company like Consolidated Hallmark Insurance which former Managing Director, Eddie Efekoha now Group Managing Director Consolidated Hallmark Holding Company, said firm has always occupied the fifth position in annual report filing insisted that they need not worry sending their staff abroad but would make use of what they have to get what they want.
Insurance experts viewed that it is not most likely all firms would meet the deadline just as it has always happened in the past.
This raises the question on whether NAICOM would raise its punitive hammer on companies yet to comply or give some months of grace for more operators to comply.
Speaking to the media on this, the Director General, Nigeria Insurers Association (NIA), Mrs Yetunde Ilori, said the implementation of IFRS 17 was a general challenge that affected not only the insurance industry but the entire economy.
She was optimistic that operators would be given a concession by the regulators by extending the date for submission of their financials.
She described the model as a learning process, adding that operators were holding meetings and series of engagements ongoing.
“I know various regulatory authorities may grant concession that is requested for, if there is need. Work is still in progress, I’m sure companies will approach their respective supervisory authorities to ask for an extension if there’s need for it”, she stated.
Awaiting NAICOM Decision
Although NAICOM has not made any official statement on the fate of companies yet to comply with the directive as it is just barely two months after the deadline expired, the commissioner for insurance, Mr Sunday Olorundare Thomas had at a public discourse on Insurance expenses, risks and allocation in IFRS17 reporting organised by Mettlehouse Consulting Limited (MHCL), said implementation of the IFRS17 has presented the insurance industry with formidable challenges, particularly in relation to the allocation of insurance service expenses.
According to him, achieving transparency, comparability and consistency in financial reporting by insurance operators in Nigeria will be a great milestone.
“We all know that the IFRS 17 has fundamentally transformed the way insurance contracts are accounted for as it introduced a principles-based approach that aims to improve transparency, comparability, and consistency in financial reporting. While the overarching objective of IFRS 17 is commendable, the practical implications on expenses allocation have posed intricate challenges for insurers Worldwide.
He said the discourse therefore, presents a timely opportunity for the experts to engage in collaborative discourse and share insights on navigating the complexities of the insurance service expenses allocation under IFRS 17.
He said as a regulated industry, the Commission was committed to the harmonisation of financial reporting practices among licenced insurance operators in Nigeria to achieve comparability among the industry players as this remains one of the key objectives of IFRS 17.
Pending the time the commissioner for insurance will decide the fate of firms which could not meet the deadline, analysts said all eyes are on the commission regarding wise decision on this.
According to them, this is because if the commission decides to raise its regulatory hammer on the errant firms, in the area of slamming fines, shareholders will not be happy.
Already, shareholders have been complaining that funds that would have been paid to them as returns on investment are used in payment of fines for infractions every year. They also viewed that if the commission decides to resume imposition of fines for infraction like this, industry critics may misinterpret it that the commission is looking for ways of boosting its revenue because of the mandatory 50 per cent deduction from the internally generated revenue, which it will pay to federal government according to the mandate of government to its agencies on December 28 last year. On the other hand if the commission allows those errant firms to go free, the laggards among them will in future continue doing things at their own pace hoping that the commission will do nothing.
They therefore said that this calls for use of regulatory intelligence and tactics by the commission to drive the industry aright in this most challenging times the country found itself .
NAICOM had directed insurance firms to migrate from IFRS4 model of financial reporting to IFRS17 model allowing firms to prepare their 2022 report based on IFRS4.
The commission however said all insurance firms must file in their 2023 report in 2024 based on IFRS17.
Purpose of IFRS17 Migration
Finance experts said the purpose of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts it undertook.
According to them, information from the IFRS17 gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.
According to the experts, the IFRS 17 requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. This requirement will provide transparent reporting about a company’s financial position and risk.
Nigeria adopted IFRS in 2012 because the level and quality of disclosure prior to the adoption of IFRS was poor. The benefits expected to derive from the adoption and implementations include easier access to external capital and an increase in foreign direct investment.
IFRS generally is issued by London based accounting standard board (IASB) and addresses record keeping, account reporting and other aspects of finance reporting .It replaced the international account standards (IAS) in 2001.
Initially when NAICOM issued the directive on IFRS17, not many firms embraced it as many criticised and kicked against it but today the firms have all bowed to NAICOM as many firms are running around looking for how to upscale their operations.
Operators’ Level of Preparedness
Speaking on how far his company has gone on this, the International Financial Reporting Standards (IFRS 17) Project Manager at AIICO Insurance Plc, Mr. Mayowa Korode said the IFRS 17 was developed to bring consistency to financial reporting around the globe for companies reporting under IFRS 17, and to compare insurance companies to those operating in other sectors of economy.
Korode maintained that AIICO Insurance was fully ready for the implementation, adding that the Company’s first and second quarters 2023 reports were done in IFRS 17 model.
Korode noted that the most fundamental element of change that IFRS 17 brought was the closer alignment of the accounting to the underlying economics of insurance.
He said AIICO Insurance as a company has adopted full implementation of the new standard.
“IFRS 17 is a comprehensive standard to account for insurance contracts applicable to companies that prepare financial statements under IFRS. It replaces IFRS 4, which was not a comprehensive standard. The new standard provides a single global accounting standard for insurance contracts.
Explaining the existing issues in IFRS 4 and how IFRS 17 addresses the problem, he said IFRS 4 has a variety of treatments depending on type of contract and company; estimates for long-duration contracts not updated; discount rate based on estimates does not reflect economic risks; lack of discounting for measurement of some contracts and little information on economic value of embedded options and guarantees.
He however said IFRS 17 provides consistent accounting for all insurance contracts by all companies; estimates updated to reflect current market-based information; discount rate reflects characteristics of the cash flows of the contract; measurement of insurance contract reflects time value where significant and measurement reflects information about full range of possible outcomes.
The Balance Sheet in IFRS 17, he noted, required a current measurement model, where estimates are re-measured in each reporting period.
The measurement, according to him, is based on the building blocks of discounted, probability-weighted cash flows, a risk adjustment, and a contractual service margin (‘CSM’) representing the unearned profit of the contract.
For Income Statement, requirements in IFRS 17 align the presentation of revenue with other industries. Investment components are excluded from revenue.
Under IFRS 17, entities have an accounting policy choice to recognise the impact of changes in discount rates in profit or loss or in other comprehensive income (‘OCI’) to reduce some volatility in profit or loss.
On Disclosures, he said, IFRS 17 disclosures will be more detailed than required under current reporting frameworks; disclosures will provide additional insight into key judgements and profit emergence, adding that disclosures are designed to allow greater comparability across entities.
Sovereign Trust Insurance said it has already migrated. Spokesman of the company, Mr Segun Bankole, said the company already had prepared its 2022 account based on the new model and has converted same to IFRS17 as directed by the regulator.
Expressing satisfaction at the position of his company as one of the early adopters of the new model, he said he has just received about five employees of the company sent to foreign markets for training on the new model.
Also Leadway Assurance Limited said it has already done the implementation of the International Financial Reporting Standard17.
Mr Raphael Akomolede, of finance department of the company gave insights on the position of Leadway regarding the implementation of the IFRS 17.
He said the company had 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; preparation of technical documents and reviews and vendor selection for IFRS 17 and has complied.
He said the impact of IFRS 17, included 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.
While commending the National Insurance Commission for the roadmap for the implementation of IFRS 17 for the insurance industry in Nigeria, he said the commission was working seriously since 2019 towards ensuring the full adoption of IFRS 17 in the Nigerian insurance industry
NAICOM’s Roadmap
Since its announcement of the new model of finance reporting in 2019, NAICOM has not rested on its oars. Indeed, the commission seems to be much more prepared compared to other stakeholders 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 were also required to perform resource allocation, submit quarterly project status report to NAICOM and educate stakeholders and conduct core training on IFRS.
They were further required to implement new processes and system, new accounting policies choices and performance financial statements, etc.
Experts’ view
Meanwhile, finance 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 said with IFRS 17 implementation, organisations needed a lot of data which they would 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.
They further said with migration to IFRS 17, organisations would pay heavily on new software developments, especially with the current high exchange rate, emphasising 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.
