- Time frame for transition originally set for 2023 beginning
- Industry expected to write to IRCSL and CA Sri Lanka requesting 2-year deferment
- IFRS 17 said to have transformative effect on life insurers’ financial reporting
By Nishel Fernando
Citing several challenges that has arisen due to the pandemic, Sri Lanka’s insurance industry players are preparing to seek a deferment on the transition to the new IFRS standard for insurance contracts—IFRS 17— which is scheduled to come into effect on January 1, 2023.
In correspondence with the IFRS 17 issued by International Accounting Standard Board (IASB), Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) in 2020 issued SLFRS 17, which is scheduled to come into effect on January 1, 2023.
According to industry sources, local insurance industry players have reached a consensus to formally request a 2-year deferment on the implementation date of IFRS 17 standard from the Insurance Regulatory Commission of Sri Lanka (IRCSL).
If the IRCSL views the request favourably after considering the ramifications, the request would be forwarded to CA Sri Lanka.
However, IRCSL Director General, Damayanthi Fernando and CA Sri Lanka President Manil Jayesinghe told Mirror Business that both entities were yet to receive such a request formally. In particular, IFRS 17 is expected to have a transformative effect on life insurers’ financial reporting, impacting their business strategies. Joining a virtual panel discussion titled ‘First Capital Equity Forum - Life Insurance and Port City,’ organised by First Capital Holdings last week, Softlogic Life Insurance PLC Managing Director, Iftikar Ahamed hinted at a possible delay in embracing the IFRS 17 standard.
“IFRS-17 was supposed to go into effect from 2023, but that was in the pre-COVID timetable.
With the pandemic hitting the world and as lot of things not working the way they were used to in terms of timetables, it is likely that there will be a delay, however, that’s yet to be seen.
It will depend on the readiness of various industry players: how well they can access the resources, cost of the resources, whether we able to pay for these resources especially given the need to acquire considerable number of such resources from abroad,” he elaborated.
Further, Ahamed cautioned that acquiring required expertise and talent for the complex exercise could also become challenging for Sri Lankan insurers given that the whole world is transitioning into IFRS 17 standard competing for a limited pool of resources.
“The Immediate issue is going to be lack of expertise and talent, because you need people in the actuarial and finance front who really understand this,” he added.
He specially highlighted that life insurance industry would require additional investments and expertise to make the required calculations considering the ‘long-tail of the life insurance business’.
However, some experts in the accounting field fear that such a delay in adopting the new IFRS standard could sideline Sri Lanka, consequently creating certain implications on reinsurance and so on.
In addition, foreign-owned insurance firms in the country are likely to adopt the IFRS-17 standards moving along with the global adoption; therefore, some experts in the field caution that it could possibly lead to complications in the regulatory front as it would be difficult to draw comparisons of information presented with two different reporting standards.
If CA Sri Lanka receives a formal request, Jayesinghe noted that the Institution would reach a decision with a balanced approach.
“If such a request approaches us, we will take a practical view on this, while considering implications that could arise from such an extension,” he said.
Meanwhile, Ahamed stressed that IFRS 17 could potentially transform business strategies of life insurance firms in the country, in particular with the introduction of the contractual service margin (CSM), which represents the unearned profit that an entity expects to earn as it provides services.
“With IFRS 17 coming in, insurance companies will have to decide whether they are going to continue with the same business strategy or should they change some of their products,” he said.
At end 2020, Sri Lanka had 27 insurance companies operating in the country with 13 being life insurance firms. However, life insurance penetration in Sri Lanka measured by life premiums as a percentage of the Gross Domestic Product (GDP) stands considerably low at below 0.5 percent compared to nearly 3.5 percent in Malaysia and around 2.5 percent in Thailand, according to First Capital Research (FCR).
FCR forecasts the growth in life insurance sector gross written premiums to accelerate to 18 percent every year from 2021 through 2023, from 15 percent seen during 2014 through 2020 as the pandemic to cause more people to reconsider health insurance needs coupled with life insurance.