Insurers to spend ‘big’ as IFRS 17 transition deadline looms
By Steve Umidha, August 2, 2022Kenyan insurance firms are set to spend hundreds of millions of shillings to implement the IFRS 17 insurance accounting standard into their operations as the deadline for compliance looms large.
While the real cost of implementation by over 40 firms with local operations is less clear, sector’s lobbyist, Association of Kenya Insurers (AKI) says insurers should be ready to spend ‘big’ in order to meet the IFRS 17 transition requirement that comes into effect on January 1, 2023.
“We now have the report and I can tell you this is not going to be a cheap exercise…most of them now have dedicated teams like actuarial departments to help in the study and implementation of the mandatory requirement,” said AKI’s CEO Tom Gichuhi in a phone interview yesterday on the level of preparedness by policy providers ahead of the deadline.
The implementation of the International Financial Reporting Standard (IFRS 17) was delayed by one year due to the Covid-19 pandemic.
But the new conditions for reporting rules for underwriters will now see firms set aside substantive budgets towards the exercise – with most companies deficient in actuarial departments –likely to outsource or hire specialists in that field.
The total number of actuaries in Kenya is now estimated at about 68, signalling an ever-increasing demand inspired by new opportunities in various sectors such healthcare, banking and other financial institutions, adding that this is an emerging development away from the previous concentration of demand in the insurance sector.
AKI had in late April hired a consultant to carry out a survey on the level of preparedness of Kenyan insurers to comply with the requirements of the International Financial Reporting Standards (IFRS 17).
Market analysis
The consultant, Kenbright Actuarial and Financial Services, a subsidiary of Kenbright Holdings Ltd returned a 60 percent level of readiness in its market analysis– meaning the market was on-course to meet the compliance level. “We got the report last week and the level of preparedness between Kenyan insurance firms is between 50 per cent and 60 per cent, which is very impressive,” noted Gichuhi.
IFRS 17 will replace IFRS 4 as the financial reporting standard for insurance companies and will be implemented for reporting periods starting on or after January 1, 2023. Any legislative changes impacting tax would need to be finalised prior to that date. Deloitte’s Insurance Outlook 2022 highlights post-pandemic challenges study, anticipates that, for some, the transition to IFRS 17 will give rise to significant additional day one IFRS profits.
Such profit increases will result in increased tax payable on transition which may place certain insurers under severe liquidity strain.