Abstract:

The International Accounting Standards Board (IASB) published in July 2014 the final version of the International Financial Reporting Standard 9 'Financial Instruments' (IFRS 9), which was adopted by the European Union on 22 November 2016. The aim is to avoid a major impact on the comprehensive income statement or operating result. The new way of classifying and measuring approaches is close to the market value of financial instruments. The approach to calculating credit losses as an attempt to predict losses rather than identifying them only at the time of their occurrence is the main goal and the biggest change compared to International Accounting Standard 39: 'Financial Instruments: Recognition and Measurement' (IAS 39). This paper outlines some of the most important areas to consider when implementing IFRS 9 into insurance companies practice while taking potential future impacts and requirements into account. This paper explores the considerations and benefits for the options insurance companies have and how the market is responding to the recent decisions taken by the IASB.  Insurance companies should plan how to apply IFRS 9 for their investment portfolios as well as for other financial instruments. Changes that arise from the new Standard are likely to have a significant impact on insurance companies particularly for those who currently hold amortized cost assets or that make significant use of the Available for Sale category under IAS 39. Deferred recognition of credit losses in accordance with incurred loss approach is exposed to critics from financial crisis in 2008. There are expectations that earlier recognition of credit loss increases the procyclicality and thus improves financial stability.