Insurance : In or Out of the “Too Difficult” Box?

IFRS 17 requires a significant change to insurer accounting, and we look at some of the frictions resulting from its implementation. We make three points. First, since IFRS 17 is a principles-based standard, it will be costly to implement. Audit committees must become sophisticated users of the underlying models generating the reports. Second, we examine the effect the Sarbanes Oxley Act on U.S. public insurers and a similar law for private insurers to assess the costs of complying with new rules. We find evidence that these costs are not uniform in their incidence across the life and non-life insurance industries. Third, we conduct an event study of specific announcements regarding IFRS 17 promulgation and implementation. We find a negative sentiment for announcements concerning the implementation. However, we cannot identify a single specific rationale for the negative sentiment as it could be related to several factors. In sum, we find that there are many reasons to keep insurance accounting “IN” the IFRS and some reasons to keep it “OUT,” but the “too difficult-ness” is not likely due to the technical standard itself but other things that may reflect the ultimate benefits of the standard to investors