Insurers must shift to new accounting standards by 2023

MANILA, Philippines — The Insurance Commission (IC) is urging insurance companies to begin the transition to new accounting standards beginning January 2023 in time for the industry-wide implementation in 2025.

IC Deputy Commissioner Ferdinand Gorge Florendo said insurers are given enough time to shift to the Philippine Financial Reporting Standard (PFRS) 17 from the current PFRS 4.

In line with the shift to new accounting policies, insurance firms will need to change their data administration, financial presentations and actuarial calculations.

Florendo said the shift would make financial reports more “transparent and universally comparable, especially for the investing public.”

He said it would be easier for international investors to assess the condition of local insurers for investment or possible buyout through the use of an accounting system with a common approach.

IC said that PFRS 4 is an intermediary standard which allows insurers to apply existing local generally accepted accounting principles resulting in diverse practices for reporting insurance contracts.

PFRS 17, on the other hand, uses a single accounting approach which provides more transparent and harmonized information for managers, decision makers and the investing public.

The local insurance industry registered a higher premium income of P247.72 billion last year, up by 5.9 percent from P233.92 billion a year ago, while benefit payments recorded a 10-percent drop to P69.36 billion.

The 10-percent decline was attributed to difficulties in the processing, filing, and pay-out of claims amid lockdown restrictions.

Community quarantine restrictions have also affected sales as total new business annual premium equivalent (NBAPE) dropped by nearly 20 percent to P46.16 billion in 2020 from P57.56 billion in 2019.

IC attributed the drop in new sales to restrictions on face-to-face selling of insurance products.

Meanwhile, the industry’s paid-up capital rose to P25.28 billion during the pandemic year, climbing by 7.66 percent from the previous year’s P23.48 billion while total assets reached P1.53 trillion last year, an increase of 7.78 percent from P1.42 trillion in 2019.

This, in turn, was attributed to the growth in the industry’s total investments last year.