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SECP pushes for IFRS 17 implementation, modernizing insurance reporting

SECP pushes for IFRS 17 implementation
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April 23, 2024 (MLN): The adoption of international reporting standards for modernizing Pakistan’s insurance industry is a critical priority for SECP as a regulator of the insurance sector, Aamir Khan, Commissioner of Insurance, SECP, stated while delivering the keynote address at a seminar on IFRS 17 Implementation.

He stressed the importance of IFRS-17 adoption by January 1, 2026, as any delay could lead to Pakistan's market lagging behind international markets.

He emphasized the responsibility of stakeholders and SECP as regulators in implementing IFRS-17 and the need for familiarization with its impact on decision-making.

The seminar was attended by the representatives from the Korean Accounting Standards Board industry players, experts, consultants, and SECP policy department personnel.

Insurance, he said, being an integral component of the overall financial sector, serves as an automatic stabilizer by mitigating the economy’s sensitivity to macroeconomic shocks in addition to being a saving and capital formation tool.

Despite the potential to promote sustainable finance, and support long term risk-taking, the Insurance landscape of Pakistan has remained underdeveloped.

The comparison to its peers representing less than 1% of GDP, is one of the lowest in the region.

As of 2022, the total assets stood at Rs2.42 trillion ($10.5 billion) with the written premium standing at Rs553bn ($2.5bn).

Despite the small industry size, and a fragmented structure with 42 active players, but the insurance industry offers tremendous potential.

In this regard, the SECP embarked on the initiative of identifying gaps and challenges in insurance industry, jointly with industry stakeholders, and formulated the 5-year Strategic Plan which was launched in December 2023.

One of the key priority areas of 5-year strategic plan is the achievement of financial stability through adoption of International Financial Reporting Standards and Risk Based capital regimes for the insurance industry.

Fundamentally, IFRS 17 is designed to bring about greater transparency and consistency in financial reporting in the insurance industry.

Being a globally accepted accounting standard for the measurement of insurance contracts, adoption of IFRS-17 shall allow the international markets to look positively onto Pakistani insurance market, and make the comparative assessment easier.

Through reflection of information related to underwriting and investment activities on the financial statements, in a transparent manner, it can serve as a game-changer in building trust and confidence among investors, regulators, existing and potential policyholders, as well as other stakeholders, such as rating agencies and reinsurers.

SECP expects IFRS 17 also to be a key catalyst for insurers to review, if not overhaul, business processes across the organisation. This will be driven by at least three factors:

First, the need for business units to capture broader and more granular information required for financial reporting.

Second, changes in the way performance is measured under the new standard.

Third, increased opportunities for insurers to differentiate themselves from the competition, helped by a more integrated view of performance.

These considerations will have wide implications for organizations’ structures, data capturing mechanism, risk management, and product design and development and systems.

Recognizing the importance of standardized financial reporting, the SECP is actively engaged in the process of implementing IFRS 17 and aligning related regulatory framework to support transitioning to the new standard.

In collaboration with ICAP, the PSOA and the insurance industry, the SECP envisaged a four-phased approach for the implementation of IFRS 17, where work under phase 3, System Design and Methodology, is underway.

Given that majority of international markets have adopted the standard either last year or this year, meeting the adoption timeline of January 1, 2026 is critical and an absolute priority for SECP’s team looking at insurance policy.

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Posted on: 2024-04-23T16:48:30+05:00