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.
But the work must start now, and it must start right by taking a broader and integrated approach to implementation. Today’s workshop aims to bring some of the most important issues in implementation to light, and provide you with valuable insights from our distinguished speakers and subject matter experts. With greater clarity and knowledge to inform careful preparations, insurers can be confident of not just achieving a smooth transition to IFRS 17, but of laying strong foundations for long term growth and success. 4/5  BIS central bankers' speeches  That is the ultimate goal. 5/5  BIS central bankers' speeches