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Pension funds, insurers lack funds to adopt IFRS 17

Ipec actuarial director Robson Mtangadura said some companies had made significant progress while others faced challenges.

PENSION funds and insurers lack sufficient software and finances to adopt the International Financial Reporting Standard (IFRS) 17 insurance accounting principle, it has been revealed.

Since last year, the Insurance and Pensions Commission (Ipec) has been pushing for insurance firms and pension funds to adopt IFRS 17, with the regulator aggressively pushing for the adoption over the past few months.

Ipec gave funeral assurers up to September to adopt IFRS 17 or possibly face penalties.

According to the regulator, IFRS 17 helps govern the recognition, measurement, presentation, and disclosure of insurance contracts. The main objective of the standard is to enhance the comparability of insurance companies globally.

In emailed responses to Standardbusiness, Ipec actuarial director Robson Mtangadura said some companies had made significant progress while others faced challenges.

“The implementation of IFRS 17 has posed several challenges for companies. Some of the key challenges include data,” Mtangadura said.

“Implementing IFRS 17 requires robust data and systems to capture and process the necessary information.

“Many companies have resorted to the use of simpler methods which require limited data.”

On information technology systems, Mtangadura said only a few entities have been able to develop their own systems to accommodate IFRS 17 requirements.

“The majority have relied on rented third-party IFRS 17 solutions and the use of excel-based solutions in the interim.

“Liabilities estimation – insurers have challenges coming up with the appropriate discount rate due to the absence of frequently traded bonds in our market,” he said.

“Overall, some companies have made significant progress and are well on track to meet the implementation deadline, while some insurers still have challenges to ensure full implementation, which has resulted in some of them failing to submit their quarterly returns.”

As part of measures to encourage compliance, Ipec formed an IFRS 17 working group whereby the regulator would bring together local professional bodies representing pension funds and insurers.

Insurers were also requested to submit IFRS 17 dry run financial statements as from June 30, 2022, to December 31, 2022.

“The analysis of the dry run submissions informed some areas of intervention by the regulator to ensure effective implementation of the standard,” Mtangadura said.

Dereflexion Accounting firm accountant Tatenda Muronda noted that adjusting to IFRS 17 mattered significantly for insurance companies

“Adjusting to IFRS 17 is essential for insurance companies to ensure compliance with international standards, enhance transparency and disclosure, improve decision-making and risk management, gain a competitive advantage, comply with regulatory requirements, and enhance investor confidence and stakeholder trust,” Muronda said.

“Failure to adjust to IFRS 17 effectively may result in negative consequences for the company's financial performance, reputation, and long-term viability.”

She said compliance with IFRS 17 enhanced investor confidence in the financial statements of insurance companies by providing assurance about the reliability, relevance, and comparability of financial information.

“Companies that successfully adjust to IFRS 17 may gain a competitive advantage over their peers by demonstrating strong financial reporting practices, transparency, and compliance with international standards,” Muronda said.

“This can attract investors, enhance the company's reputation, and support sustainable growth and profitability in the long term.

She said IFRS 17 introduced comprehensive disclosure requirements aimed at providing investors and stakeholders with better insight into an insurer’s insurance contracts, financial position, performance, and risk exposure.

“Compliance with these disclosure requirements enhances transparency and helps build trust and confidence among investors, regulators, and other stakeholders,” Muronda added.

“IFRS 17 provides more accurate and relevant information about insurance contracts, including the measurement of insurance liabilities, recognition of profit over time, and disclosure of key assumptions and estimation uncertainties.”

She added that this enabled investors, management, and other stakeholders to make more informed decisions about investment, risk management, and strategic planning.

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