Equity Trader at JMMB Group, Clive Charlton, says investors should expect changes in how insurance companies report their financials going forward. 

Speaking on Taking Stock with Kalilah Reynolds, Charlton said that the change stems from a new international standard on financial reporting for insurance companies, IFRS 17.

IFRS provides consistent principles on all aspects of accounting for insurance companies. Clarton explained that IFRS 17 removes inconsistencies and enables investors, analysts and others to meaningfully compare companies, contracts and industries globally.

He said the new standard will only affect how companies report their profit and revenue. He emphasized that it will not affect the rates that the companies offer to customers.

He explained that the new standard will allow insurance to factor in the length of particular policies when considering them as assets or liabilities.

“The point is that as the period of coverage extends then it means the risk and the potential liability also extends and institution will have to account for that so that premium received,” Charlton explained. 

“We can’t just record it as revenue we have to proportion it according to the liability and recognize a fraction of it,” he said.

“So you might see the restated revenues being reduced, you may see liabilities expanded and in the balance sheet and you may see assets being reduced and shrunk a little bit,” he added. 

He said that changes could affect financial reports going back at least five years.

He stressed that this change in reporting should not impact insurance rates, or companies’ cash flow, however, it may affect how investors perceive a company’s performance.

“It means then how investors value the stock price of the company may be adjusted. When the results come out, if the market is not informed properly, we may see an adjustment in stock prices,” he said.

However, Charlton said in the long run the company’s business and performance will remain the same.