Strengthening market discipline For a long period, the absence of a common uniting standard to account for the measurement of insurance contracts has resulted in a wide range of approaches being applied by insurers across the world. Take for example the measurement of present value of future cashflows from insurance contracts. While some insurers update the discount rates to reflect current economic conditions, others opt to retain the use of historical discount rates when these contracts were originally underwritten, ignoring recent and future developments that could affect the value of the contracts. This means that similar contracts are being measured very differently, resulting in contrasting representations of the true performance and strength of an insurer. Such variations in measurement approaches significantly complicate comparability between insurers. This in turn weakens market discipline. The harmonisation of insurance contract measurement approaches across the globe brought about by IFRS 17 is therefore timely, if not long overdue. The measurement of insurance liabilities using current market prices will bring about a closer alignment between the assets and liabilities on an insurer’s balance sheet. And with a clearer demarcation between underwriting and investment profits and the recognition of profits over the lifetime of a contract rather than at a single point in time, IFRS 17 will also paint a more accurate picture of an insurer’s performance. These improvements will increase the relevance and utility of financial information provided to investors, financial advisers, insurance risk managers, businesses and individuals to inform investment and purchasing decisions.
Encik Abdul Rasheed Ghaffour: Value-Based Intermediation (VBI) propelling Islamic finance Address by Mr Encik Abdul Rasheed Ghaffour, Deputy Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the Value-Based Intermediation (VBI) Dialogue, Kuala Lumpur, 24 August 2017. * * * Over the years, finance has lifted the lives of many, enabled businesses to grow and helped to fund the construction of public infrastructure that we now depend on. Yet, as the global economy transforms and society evolves, the question as to whether the financial sector is sufficiently serving the needs of the real economy continues to be debated. The evidence from the global financial crisis underlines the need for the financial sector to restore its balance with the real economy. There is a need to rethink, reassess and re-strategise the role and contribution of the financial industry. Undoubtedly, there is an increasing expectation for the financial sector to deliver greater impact to the economy and society. I am pleased to be here with you today and be part of this important milestone in our Islamic finance journey. The issuance of the Value-Based Intermediation (VBI) Strategy Paper by Bank Negara Malaysia marks the next step to realising the full potential of Islamic finance. On behalf of the Bank, I wish to thank all of you who have devoted time and effort to work with us in this important initiative.