Article/Guo Zhenhua, columnist of Sina Financial Opinion Leader (WeChat official account kopleader)
IFRS17 is about to bring about a big change in the income statement, which will undoubtedly cause a huge visual and cognitive impact on the insurance industry.
The new version of "International Accounting Standard 17: Insurance Contracts", namely IFRS 17, is expected to be implemented in 2021, which will bring revolutionary impact to the insurance industry. The most influential is the profit statement of the insurance company.
1、 The profit statement has changed a lot
You are used to the current income statement of an insurance company. The income statement of a life insurance company is shown below.
However, this income statement has many defects, such as the revenue bubble mentioned above. There must be bubbles in operating income and operating expenditure.
The defects of operating revenue have been clearly stated above, and the defects of operating expenditure at least include:
1) Surrender: neither income nor expenditure;
2) Withdrawal of insurance liability reserve: the outstanding balance of withdrawal and transfer should be left, and others should be deducted from the revenue;
3) Policy dividend expenditure: mainly interest expenditure, which should be deducted from the revenue;
4) Handling fee and commission expense: it refers to the commission expense of new insurance premiums in recent three years. How does it correspond to the current period?
5) Other business costs: the interest expense of universal insurance shall be deducted from the revenue.
In view of the above defects, after the implementation of IFRS 17, the income statement of insurance companies will be divided into two parts: insurance services and investment services. The operating profit is equal to the sum of the profits of the two services.
2、 Income Statement of Insurance Services
The profit statement of insurance services is shown in the following table.
The insurance income has been explained previously. As for the insurance service fees, first, the recognition of losses has been increased, that is, the losses of the loss insurance policies should be explicitly recognized in the current period. Second, various expenditures corresponding to the reporting period have been formed, including actual claims, increase in outstanding claims liabilities, acquisition cost amortization and other insurance service expenses.
The financial income or expense of insurance refers to the impact of financial risks on the profitability of insurance business, which is mainly reflected in the cash flow of performance caused by the change of discount rate. As we all know, the change of discount rate is the biggest reason for the profit fluctuation of life insurance companies. This fluctuation will be reflected in "insurance financial income or expense" after the implementation of IFRS 17.
3、 Income Statement of Investment Services
IFRS 17 did not give any comment on this, but said that the investment part should be removed for another accounting.
As far as the investment part is concerned, the profit of investment services should be the investment income minus the interest paid to customers and investment expenses. The income statement is as follows.
4、 Short term insurance income statement
For property insurance companies that only operate short-term insurance, the premium distribution method can be used to calculate insurance income. The income statement is as follows:
IFRS17 is about to bring about a big change in the income statement, which will undoubtedly cause a huge visual and cognitive impact on the insurance industry.
(The author of this article introduces: Doctor of Risk Management and Insurance of Tongji University, professor of Shanghai University of International Business and Economics, director of the Department of Insurance, director of China Insurance Society and executive director of Shanghai Insurance Society. He has unique views on the insurance industry and the operation of insurance companies. He runs the public account of "Insurance God".)
