HKFRS 17 strengthens investor protection to enhance market efficiency

(Hong Kong, 23 February 2018) The Hong Kong Institute of Certified Public Accountants (HKICPA) has approved HKFRS 17 Insurance Contracts, the equivalent of IFRS 17 issued by the International Accounting Standards Board (IASB). HKFRS 17 is a new accounting standard for insurance contracts that accounts for insurers’ liabilities and revenues in a way that leads to better-informed investment decision making and protection for investors.

“HKFRS 17 ensures that Hong Kong’s insurance industry remains at the forefront of global accounting best practices and that Hong Kong maintains its position as a world’s leading financial centre. More importantly, HKFRS 17 better reflects the insurers’ liabilities and financial wellness by using more up-to-date market inputs and comparable data. This is important for investors assessing the long term continuity of the company, hence offering better protection to investors and enhancing market efficiency,” said Christina Ng, Director, Standard Setting of HKICPA.

Ms Ng explained that the new standard brings several key benefits to insurance policy holders and will make financial reporting more meaningful to investors. The new standard will become effective on 1 January 2021 and replaces the many ways in which insurers are currently allowed to account for and report insurance contracts.

Valuation of insurers’ liabilities strengthens investor protection

Insurance, in particular life insurance, is based on long term assessments and estimations. By updating insurance liabilities with current value market inputs, HKFRS 17 helps policy holders and investors assess whether the companies have sufficient reserves to make payouts and cope with various economic risks over the long term. Currently an insurer’s liabilities may be measured using outdated market data which may not accurately portray its future insurance policy payouts. Investors who want to understand the long term risk profile of these companies currently must request management's alternative performance measures, and these measures may vary by company.

Revenue recognition
In applying HKFRS 17, insurance companies will recognise revenue as the insurance services are provided. This is an improvement on current practice, where premiums are recognised as revenues when they are received, although these premiums represent services that will be provided over the course of time in the future. It is misleading to recognise revenue in advance of providing the goods or services to a customer.

Comparability for decision-making
The new standard will make it clearer how much profit is made from insurance activities versus asset management activities if an insurer issues policies with both insurance and investment elements. This distinction will help investors make better comparisons between an insurer and its relevant peers, be it another insurer or a pure asset manager. This is important for a long term investor in assessing the full picture of a company's operations and sustainability in the long run.

HKICPA to monitor and support implementation
Ms Ng said HKICPA has been working with stakeholders in the local insurance industry to shape IFRS 17 prior to its adoption, and while the new standard is largely beneficial, HKICPA will continue to speak up for and assist the insurance industry in Hong Kong to ensure they are not disadvantaged at the implementation stage.

"Other capital markets may not implement IFRS 17 in time or in full, so Hong Kong insurance companies are concerned they might be disadvantaged in the competitive global investment environment," she said.

"Locally, the insurance industry is also concerned about the availability of sufficient actuarial talent and IT solutions to meet the effective date of the new standard, as well as the costs of implementation."

HKICPA is in active dialogue with the IASB, and is addressing these concerns and assisting the insurance industry by creating an implementation support group, providing enhanced training and support, closely working with the Hong Kong Federation of Insurers and the Insurance Authority, as well as closely monitoring global developments in the standard’s implementation.

 

香港會計師公會頒佈保險合同的新會計準則

香港財務報告準則第17 號有助加強投資者保障並提高市場效率

（香港，二零一八年二月二十三日）香港會計師公會已頒佈香港財務報告準則第 17 號保險合同（HKFRS 17），即國際會計準則理事會（IASB）頒佈的國際財務報告準則第 17號（IFRS 17）的相應準則。HKFRS 17 是針對保險合同的新會計準則，以處理保險公司的負債及收入，更有利投資者作出知情的投資決定，加強對投資者的保障。

香港會計師公會準則制訂部總監吳玉環女士表示：「HKFRS 17 有助確保香港保險業繼續站在全球會計最佳實踐的前綫，並維持香港全球在領先金融中心的地位。更重要的是，HKFRS 17 採用最新的市場價值與可比較數據，能夠更充份反映保險公司的負債與財政穩健狀況。這是投資者評估保險公司長遠持續營運能力的重要參考，能有效為投資者提供更佳保障，提高市場效率。」

吳女士解釋，新準則不僅為保單持有人帶來多項重大益處，亦令財務報告對投資者更具有參考意義。新準則將於二零二一年一月一日生效，取代現時保險公司可採用不同處理及報告保險合同的方式。

評估保險公司負債有助加強投資者保障
保險，尤其人壽保險，乃建基於長期評估及預算。HKFRS 17 規定以現有市場價值及資訊來反映保險負債，有助保單持有人及投資者評估保險公司的儲備，長遠是否足以應付各種付費及經濟風險。按現行準則，保險公司的負債可以使用過時的市場數據計量，未必能準確反映保險公司的未來保單付費。目前，投資者如要了解保險公司的長遠風險狀況，須要求保險公司提供其他績效指標，而不同保險公司採用的指標不一。

收入確認
根據 HKFRS 17，保險公司將只可在提供保險服務時確認相關收入。現行做法是，即使服務於未來一段時間提供，保險公司於收到保費時仍會將之確認為收入。在向客戶提供商品或服務前確認收入會造成誤導，新準則較現行做法更為妥善。

可比性有助投資決定
根據新準則，保險公司的保單若兼具保險與投資成份，須清楚披露從保險活動與資產管理活動分別所獲的利潤。此舉有助投資者將保險公司與其他保險公司或純粹的資產管理公司相比較。這對長期投資者評估公司長遠營運及可持續性的整體狀況十分重要。

公會監察及支援新準則的執行
吳女士表示，公會一直與本港保險業持份者緊密合作，參與制訂 IFRS 17。新準則益處甚廣，公會將繼續為香港保險業表達意見並提供支援，以避免業界在新準則應用階段處於不利狀況。

吳女士續說：「其他資本市場或許不會按時或全面實行 IFRS 17，在激烈的全球投資競爭環境下，香港保險公司擔心會因而處於劣勢。」

「本地保險業還關心精算人才及資訊科技支援是否足夠以配合新準則的生效日，而應用的成本亦受到關注。」

香港會計師公會正透過與 IASB 積極溝通，設立應用支援小組，加強培訓及支援，與香港保險業聯會及保險業監管局加緊合作，以及密切注意全球各地在實行新準則方面的發展，回應上述關注事宜，為保險業提供協助。