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The Hong Kong Institute of Certified Public Accountants (HKICPA) has approved HKFRS 17: Insurance Contracts, which will come into effect on January 01, 2021.
HKFRS 17 is Hong Kong’s equivalent of IFRS 17, which was developed by the International Accounting Standards Board (IASB).
“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 leading financial centre,” said Christina Ng, director for standard setting at HKICPA, in a press statement.
“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.”
The new standards will help investors and policyholders to assess whether a particular insurer has sufficient reserves to handle claims and other economic risks over the long term. It also requires insurers to reclassify revenue when insurance services are actually provided. Currently, premiums are considered as revenue, despite the fact that premiums represent services that will be provided in the future.
However, shifting over to the new standard has its challenges. Hong Kong is also imposing new capital requirements for the financial services sector, which will mean a huge upheaval in many insurers’ finances. Other markets, such as regional rival Singapore, may also decide on a later effectivity date for their new standards, which may give firms from these markets a significant, albeit temporary, edge over Hong Kong-based insurers
Given the implementation date of January 01, 2021, firms have a little less than three years to implement HKFRS 17.
“That may seem a long way off, but the timescale will be a challenge for many,” Big Four accounting firm KPMG said in a 2017 report. “A coordinated response will be essential. Finance, actuarial and IT functions will need to work closely together like never before.”
