Insurance companies struggle to comply with new financial reporting standard

As published on on January 8th, 2023

The implementation of the International Financial Reporting Standard (IFRS-17) has come with significant costs for insurance companies, with some fearing they may be forced to merge or sell their businesses to third parties as a result. The new standard, which became effective on January 1, 2023, aims to bring uniformity to the way insurance companies prepare their financial statements, making it easier for investors and analysts to compare the financial performance of companies across different jurisdictions. However, the transition to IFRS-17 has been challenging for some companies, particularly due to the shortage of actuaries and the high cost of actuarial and accounting software.

David Limo, head of the IFRS 17 Working Party at The Actuarial Society of Kenya, has noted that small insurers are struggling to retain or hire actuaries due to higher costs, while multinationals have also faced the exit of their employees. The standard requires insurance companies to have a large amount of data on their insurance policies, which some companies may not have kept in their records.

Sammy Muthui, CEO of Minet Kenya Insurance Brokers, has said that some insurance companies in Kenya may be fatigued by the introduction of new requirements and the cost of compliance involved. Muthui explained that fatigue began with the introduction of risk-based capital in 2014, which required insurers to increase their capital to a certain amount. The implementation of IFRS-17 has also required significant investments in human and IT resources.

While IFRS-17 is intended to bring uniformity to financial reporting in the insurance industry, it is clear that the transition has not been without its challenges. Some companies may struggle to comply with the new requirements, leading them to consider merging or selling their businesses. It remains to be seen how the industry will adapt to the new standard in the coming months and years.