Invested Assets of Insurance Companies
Global Accounting Requirements and the IFRS 9 Implications for Chinese Insurers
- The accounting requirements of insurance companies’ invested assets can vary significantly among jurisdictions around the world.
- For many insurers, national requirements (or local GAAP) retain broad use, as required by national and local regulators.
- But in an effort to establish a common accounting language, IFRS standards have helped to converge accounting requirements for firms that operate across borders or have access to public markets, which brings greater transparency and comparability to global markets.
- The introduction of IFRS 9 attempts to refine the financial reporting requirements for financial instruments in response to deficiencies that were highlighted by the global financial crisis.
- As a response to the low yield environment, insurers have begun to incorporate more nontraditional and/or riskier fixed income assets into their portfolios. Because of the significant changes IFRS 9 brings, insurers will need to consider the accounting implications of any desired asset allocation changes.
- In China, IFRS 9 will likely result in a higher proportion of FVTPL assets from equity and nontraditional debt assets. It is important for Chinese insurers to incorporate IFRS 9 into broader investment objectives and align with other regulatory reforms including C-ROSS Phase II and new ALM requirements.