Implications of IFRS 17 in European financial stability: accounting methodology and evaluation modelling

Abstract

The purpose of this document is to provide an overview of IFRS 17 and its possible practices according to a context analysis conducted by EIOPA and ESMA. Furthermore, the implications of the standard will be evaluated with respect to a traditional life and pension products. This requires a deeper insight into the standard, the construction of fictive insurance product and the determination of measurements techniques. With the recent release of the standard, IFRS 17 is unexplored to many within the insurance industry. Thus, the effects of the standard on the financial statements of insurance companies and strategies for reaching objectives such as profit smoothing are yet unknown. Furthermore, the standard is principle based and does hence not specify a practice. Therefore, to determine a practice that complies with the standard and enables achievements of desired objectives is vital. In conclusion, IFRS 17 is expected to bring substantial benefits to financial stability in the EU, mainly through the transparency channel; the requirements in IFRS 17 may push insurance corporations to improve internal processes, including enhancing their internal risk management frameworks.