How Nigerian Insurers Preparing For IFRS 17 Adoption
By Edet Udoh
The insurance underwriters in Nigeria are working seriously toward ensuring full implementation of the International Financial Reporting Standard (IFRS) 17 due for commencement this year.
IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard.
The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.
IFRS 17 was issued in May 2017 and applies to annual reporting periods beginning on or after 1 January 2023.
It should be recalled that in 2020, ahead of the full implementation of the IFRS 17, the National Insurance Commission (NAICOM) inaugurated a workgroup. The group known as the Insurance Industry International Reporting Standard Working Group (IIFRSWG) was inaugurated to prepare for a seamless adoption of the International Financial Reporting Standard (IFRS) 17 in Nigeria which was initially slated to take place by 2022.
Mr Sunday Thomas, who was then the Acting Commissioner for Insurance, while inaugurating the group, said it was important because all insurance and reinsurance contracts must be reported in accordance with IFRS 17.
He said that the IFRS 17 Insurance contracts establish the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of standard.
”The IIFRWG is an advisory and consultative team being constituted by NAICOM for the purpose of a seamless adoption of IFRS 17 in Nigeria.
“In May 2017, the International Accounting Standard Board (IASB) issued the IFRS 17 Insurance contract to replace the IFRS 4 on accounting for insurance contracts by January 1, 2022. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts,” he said.
According to him, the information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.
He noted that the IFRS 17 is more than an accounting issue and insurers will need to think holistically about the impact on their organisations.
In a bid to ensure the implementation of the IFRS 17 this year, Mr Thomas inaugurated the Nigerian Actuarial Society Discount Rate Committee (NAS-DRC) to support the setting of a standardized basis of determining discount rate factors for use by the insurance industry and other stakeholders in the financial services sector, particularly in the implementation of the International Financial Reporting Standard 17 (IFRS 17) as it affects Insurance Contracts.
Thomas, speaking at the inauguration of the Committee in Abuja, said the membership of the NAS-DRC has been suitably drawn from representatives of NAS, NAICOM, Actuarial representatives of Audit Firms, as well as Resident Actuaries ofInsurance Operators (with annuity business).
He said the President of NAS and a representative of NAICOM (not below the rank of a Director) will serve as Chairman and Co-Chairman respectively, while the NAS shall provide the Secretariat.
NAICOM boss noted that “It is apparent the role of Actuaries in the implementation of IFRS 17 cannot be over emphasised, likewise the need for credible, prudent, consistent and sustainable discount rate devoid of possible manipulation by different stakeholders if left to determine same for individual company’s use.”
The objectives of the NAS-DRC, according to NAICOM boss are to determine the risk-free yield curve for use by the insurance industry; and to provide commentary on any market movement that might impact the determination of the risk-free yield curve.
After highlighting the objectives of the committee, Thomas expressed the hope that the deliberations and activities of the NAS-DRC will bring about the desirable impact on the Nigerian financial system.
While commending the nominated members for accepting to serve, Thomas told them that the insurance industry acknowledges their individual and collective sacrifices.
“It is thus my sincere expectation that the inauguration of the NAS-DRC will no doubt enhance accountability, prudence and comparability in financial reporting and thereby support the stability in the Nigerian financial system,” he added.
Speaking on the issue at the Nigerian Insurers Association 52nd Annual General Meeting (AGM) in Lagos recently, The Director-General of the Association, Mrs. Yetunde Ilori highlighted the insurance operators’ level of preparedness towards the adoption of the new accounting standard.
According to her, it is no longer news that the implementation of the International Financial Standard (IFRS) 17 is expected to commence this year.
“Prior to this time, the Council has had engagements with all critical stakeholders including the regulator, NAICOM, Chief Executive Officers of members companies and service providers with a view to ensuring a seamless implementation of the scheme.
“Enlightenment workshops were held by the Association’s Accounting Technical Committee preparatory to the take-off of the scheme.
“The Council reviewed the high cost of implementation and made suggestions to the NAICOM, which was graciously approved by the Commission and the Secretariat has advised members in this regard,” NIA DG stated.
In April this year, NAICOM informed insurers that the transition date was the end of June and that they needed to be prepared.
So far, the regulator said, it has taken a “carrot” approach, encouraging the market to comply, but it was also prepared to wield the “stick” if required.
Speaking to CEOs, actuaries and risk managers of leading Nigerian insurance companies at a breakfast meeting in Lagos hosted by Oracle, Capesso and Africa Ahead recently, Barineka Thompson, the former Director of Supervision at NAICOM, reiterated the approach being taken by the Commission and what should be expected from other stakeholders.
He told the audience that it was the role of the Financial Reporting Council (FRC) to ensure such regulations are equally adopted across the market. “Our rule is not really to take over the role of the FRC but it is to complement their efforts and as far as possible to give direction to the industry and assist the market,” he said.
“Nevertheless, we are interested in what happens, so we are monitoring the adoption of these standards across the market. We have required insurers to create a roadmap toward implementation and IFRS17 compliance.
“Of course, we will monitor compliance and carry out enforcement. We will continue to sensitise key stakeholders and have meetings from time to time.”
NAICOM has also issued guidance notes on IFRS 17 to give direction to the industry and encourage harmonised views in the application of the standard. Since 2020, there has been a regulator-organised working group, including the four big consultants, the Nigerian Insurance Association’s (NIA) actuarial working group and the Nigerian Actuarial Society (NAS), which has developed the guidance note.
“One of the key benefits of IFRS17 is that it will create a comparable market and greater transparency for the market,” he added.
As a global issue, Mr. Thompson said other jurisdictions across the region are grappling with the same issues.
“We are aware that most West Africans are looking to learn from us through the implementation process,” he said. “We have already done exercises with those markets, including Ghana.”
“In Nigeria, we are supposed to have published our 2022 IFRS 17 statement by year-end. If you look at the roadmap with its five pillars, we are supposed to be on the fourth pillar by now. Most of us are already on the third pillar,” Mr Thompson reported.
“As NAICOM, we continue to have engagements and we are monitoring technical training that the industry is giving to stakeholders, including actuarial, IT and accounting staff. We are monitoring which systems are being deployed and what modelling structure firms are putting together.”
It is critical, he said, that there is a system in place to collect and collate information in a suitable manner for it to be interpreted under the new regulations.
“We are trying to use persuasion, carrot and stick, to drive compliance. We do not intend to penalise anyone for now. June is the deadline to file the 2022 report,” he said, urging all operators to comply with that deadline.
“So far,” he reported, “in the market, all operators have submitted their gap analysis, which was pillar one of our roadmap, and also submitted financial and operational impact assessments and we have been reviewing that.
While some insurance companies are foot-dragging in their preparation towards the adoption of the new accounting model, some are already in the advanced stage.
Speaking on “Navigating the New Financial Reporting Standard,” at a one-day workshop organised by Leadway Assurance for members of the Nigerian Association of Insurance and Pension Editors (NAIPE) in Lagos, Mr. Raphael Akomolede, of Finance Department of Leadway Assurance gave insights on the position of his company regarding the implementation of the IFRS 17.
He said the company has completed solution design which takes care of Gap Analysis, Financial and Operational Impact Assessment; Designed Future State of Finance Process/Technology Gap Analysis; Development, Documentation and Review of Target Operating Model; Prepared Technical documents and Reviews and Vendor Selection for IFRS 17.
He said presently, the relevant departments of the company were working simultaneously on system testing and implementation (pre and post); reviewing and producing 2021 and 2022 Financial positions; and producing interim IFRS 17 compliant financial statements including transition disclosure.
Speaking to members of the Nigerian Association of Insurance and Pension Editors (NAIPE) in Lagos, the Managing Director/Chief Executive Officer, Universal Insurance Plc, Dr Benedict Ujoatuonu said “On the IFRS 17, “We have converted our First Quarter using the IFRS 17 format. Of course, NAICOM permitted us to Consultants but within our circle, I told my people for knowledge transfer purposes, we are not going to use consultants although, there will be an angle where our in-house will do it themselves.
“We have concluded an arrangement with Deloite to access their software that will help us in the conversion. Our first quarter conversion was done in collaboration with our consultant, and that is how we are also going to do with the second quarter.
“After the conversion, the Company was able to make profit in excess of N200 million under the IFRS 17. Of course, you know IFRS 17 discounts your revenue, carry your cost at the present situation. So despite that we are able to make profit in excess of N200 million.
