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Tuesday, 13 February 2018 - 15:42
Insurers to see a moderate increase in investment income volatility
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International rating agency, Fitch Ratings says insurers are likely to see a moderate increase in investment income volatility following the implementation of IFRS 9 accounting standards for financial instruments at the start of 2018, as more financial assets will be valued on a fair-value basis.

IFRS 17, the new standard for insurance contract accounting that is due to be implemented in 2021, is likely to pose a greater challenge to insurers, both operationally and financially.

Insurers will have to re-assess their business models through the lens of the new standards, as their business models will determine the classification of financial assets, the agency said.

IFRS 9 prescribes three classification categories: fair value through profit and loss (FVPL), fair value through other comprehensive income (FVOCI) and amortised cost.

The FVPL classification will be the least favoured by insurers, as it requires changes in fair value to be recognised in profit and loss as they arise, potentially increasing earning volatility.

IFRS 9 also replaces incurred-based credit losses with an expected credit-loss model.

The previous standard was less forward-looking, with losses recognised only upon objective evidence of impairment.

The new model may create more loss-provisioning volatility for insurers with loan portfolios, as it is based on macroeconomic forecasts.
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