A study of the impact of IFRS 4, insurance contracts on Maltese insurance companies

Abstract

This study sets out to establish how the local insurance industry was affected by the introduction of IFRS 4, the first phase of the IASB' s project on insurance contracts. In 2005 insurance companies submitted their first set of financial statements incorporating the new IFRS, and therefore the study included analysing the main changes brought about and the perceptions of local insurers and auditors regarding these changes. All insurers and auditors stated that IFRS 4, has enhanced disclosure in the financial statements, where much of this disclosure was already information being prepared by companies for internal purposes. The fact that IFRS 4 requires this information to be disclosed in the financial statements is a cause of concern to local insurers since they believe that much of this information will be used by competitors. Although transparency in the financial statements was one of the maJor advantages recognised, all insurers and auditors argued that the additional disclosure is quite convoluted and is only understood by users who are familiar with the insurance industry. However, the new standard presented an opportunity for companies to disclose information about themselves and facilitated their task of benchmarking. The regulatory body and the auditors interviewed believe that local insurance companies have managed well in the implementation of IFRS 4 in their accounting systems. Insurance companies stated that the new standard was a cost burden and a load on their human resources since additional work was needed. Insurance requirements are continuously evolving. Presently, local insurance companies have no formal plans regarding Phase II of the IASB' s project as their focus is presently on Solvency ·1I, the EU-initiated project which aims at creating a more risk-related solvency model. However, Solvency II requirements seem to have clear parallels with the requirements of Phase II of the IASB project on insurance contracts.