Insurance firms fall short of IFRS 17 transition demands
Get real time updates directly on you device, subscribe now.
By Steve UMIDHA
Kenya’s mid-tier and small insurance firms are yet to conform to the new sets of financial reporting standards, three months after the deadline for compliance lapsed.
The transition to IFRS 17 requirement came into effect on January 1, 2023, but we now understand that a number of industry players have not consented to those requirements which seek to provide transparent reporting about a company’s financial position and risk.
Some of the reasons cited for the foot-dragging by some insurers are the high costs of acquiring accounting software and actuarial systems as well as the personnel to manage them.
The implementation of the International Financial Reporting Standard (IFRS 17) was delayed by one year due to the Covid-19 pandemic, meaning the majority of insurers, some of whom are contending with financial liquidity issues, must now have such systems in place.
The new conditions for reporting rules for underwriters have seen firms set aside substantive budgets towards the exercise, even though most companies are deficient in actuarial departments, now likely to outsource or hire specialists in that field.
It is, however not a cheap undertaking according to the Chief executive of the Association of Kenya Insurers (AKI) Tom Gichuhi, who says it will cost small insurance firms “an arm and a leg” to install the two systems whose estimates he said to range between Sh60 million and Sh70 million, “probably more.”
“With respect to the level of compliance, companies are at different levels and some have not even started due to logistical issues and we can understand why. The small firms have more pressing issues at this time,” offered Gichuhi in a telephone interview yesterday, adding that the level of compliance was about 50 percent since the last market review.
Some companies with financial stability, according to the association, particularly the listed underwriters have already assimilated such systems and expanded their actuarial departments.
“At Kenya Re, being the oldest reinsurer in the Eastern and Central African region, we are prepared to take the frontline in adopting IFRS 17. So far, we have acquired a database application server and computing power specifically to store IFRS17 data,” noted Michael Mbeshi, the acting MD of Kenya-Re.
IFRS 17 requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts.
An actuarial service, for instance, is one way that corporations determine, assess, and plan for the financial impact of risk. Actuaries use mathematical and statistical models to evaluate risk in the insurance and finance industries.
The total number of actuaries in Kenya is now estimated at about 72, signaling an ever-increasing demand inspired by new opportunities in various sectors such as healthcare, banking, and other financial institutions, adding that this is an emerging development away from the previous concentration of demand in the insurance sector.
In late April last year, AKI hired a consultant – Kenbright Actuarial and Financial Services, a subsidiary of Kenbright Holdings Ltd to carry out a survey on the level of preparedness of Kenyan insurers to comply with the requirements of the International Financial Reporting Standards (IFRS 17), which returned a 50 percent level of readiness in its market analysis.
The aforementioned challenges for the average level of compliance were also pointed out by the accounting firm, PricewaterhouseCoopers (PwC) in January this year.
“What we learned from our region and globally during the implementation of IFRS 9 for banks is that initial budgets created were not sufficient and for most banks, more money was spent in the implementation and post-implementation stage.
However, the reality in our region is far from it; there is much to be done by most insurers and the East African insurance industry at large to fully meet the requirements,” said Gauri Shah, an Associate Director at PwC Kenya.
The industry regulator – the Insurance Regulatory Authority (IRA) is yet to release enhanced guidelines on the IFRS 17 transition requirements in the wake of a stumpy level of compliance by its members.
108 total views, 1 views today
