A huge endeavour for insurers – already grappling with the digital shift that requires them to change their legacy systems – the adoption of the International Financial Reporting Standard for insurance contracts (IFRS 17) is being further hindered by the pandemic.
On Aug. 7, 2020, the Office of the Superintendent of Financial Institutions (OSFI) published a letter encouraging insurers to continue their efforts toward implementing IFRS 17, and to use the additional time provided by the International Accounting Standards Board (IASB) to optimize their system for quality insurance purposes.
The regulator adds that it will continue to collaborate with the industry and key stakeholders in the insurance sector to support a robust implementation. In the same letter, the OFSI reviewed the milestones leading up to the adoption of the standard. “The move to International Financial Reporting Standard 17 - Insurance Contracts (IFRS 17) continues to be a significant undertaking for the industry and the Office of the Superintendent of Financial Institutions (OSFI),” the regulator stated.
Effective date: Jan. 1, 2023
The COVID-19 pandemic has compounded an already thorny implementation project, which the IASB has deferred more than once due to technical challenges for insurers. Currently, IFRS 17 is expected to take effect on Jan. 1, 2023. On June 25, 2020, the IASB revised IFRS 17 based on concerns identified following the publication of the standard in 2017.
The OSFI listed the measures it took to ease the implementation of IFRS 17 during the pandemic. Its provincial partners harmonized their actions accordingly, the Insurance Portal recently reported. The regulators notably stated that they were suspending all consultation exercises and work related to the issuance of guidelines until conditions stabilize.
Deadline deferred
On July 13, 2020, the Superintendent announced the gradual resumption of work to formulate guidelines in fall 2020. Its announcement states that conditions are becoming more stable, yet “risks and uncertainty remain in the financial sector.”
Consequently, the OSFI deferred the deadline to submit comments as part of its public consultation on reporting under the IFRS 17 standard in life insurance, P&C insurance and mortgages until August 31, 2020. The requirement to produce quarterly phase reports on the IFRS 17 implementation plan will take effect again on Sept. 30, 2020. In addition, targeted consultations on capital tests, including quantitative impact studies, will resume in early fall 2020.
Impact on solvency
On June 27, 2018 the OFSI sent to insurers its plan for adapting the insurance capital guidance for IFRS 17. In 2021 it intends to revise Guideline A – Life Insurance Capital Adequacy Test (LICAT) for life insurers and Guideline A – Minimum Capital Test (MCT) for property and casualty (P&C) insurers.
In 2022, the OSFI will finalize the LICAT/MCT/MICAT (capital adequacy test for mortgage insurers} to align implementation with the new IFRS effective date.
