PH insurers readied for shift to more transparent accounting rules by 2025
MANILA, Philippines—Insurance firms in the Philippines will shift to a more transparent accounting system by 2025 — a change that will require operations, financial reports and actuarial calculations to be reassessed, according to the industry regulator.
At an online forum, the Insurance Commission (IC) said it has started the countdown for insurers to transition to a new set of accounting policies that will make their financial reports easier to understand and universally comparable, especially for the investing public.
According to IC Deputy Commissioner Ferdinand George Florendo, insurance companies may start the shift to Philippine Financial Reporting Standard (PFRS) 17—from the current PFRS 4—starting in January 2023 in time for the industry-wide application in 2025.
He also explained that the firms are given enough time to complete the transition as these need to change their data administration, financial presentations, and actuarial calculations.
At the same forum, SGV & Co. partner Christian Lauron said that the new set of rules continues policies from previous accounting rules, including on how to disclose insurance contracts that provide for a comprehensive calculation of the amount of insurance reserves liabilities and how it would relate to areas like solvency, as determined and assessed by actuarial and risk professionals.
The main difference between the currently used PFRS 4 and the succeeding PFRS 17 is 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. The new set of rules uses a single accounting approach that will provide more transparent and consonant information for managers, decision makers, and the investing public.
“The industry will transition from using different sets of accounting policies for insurance contracts to one common policy and allow insurance companies across countries to become better comparable,” SGV & Co. partner Charisse Rossielin Cruz said.
Florendo added that it will also be easier for international investors to assess companies potentially available for investment or buy-out given a common accounting system.
The country’s insurance industry reported a higher premium income in 2020— P247.72 billion, up by 5.9 percent from P233.92 billion in 2019, while benefit payments recorded a 10-percent drop to P69.36 billion.
This 10-percent decline was attributed to difficulties in the processing, filing, and pay-out of claims as an effect of community quarantine restrictions imposed by the national government to curb the spread of COVID-19.
The lockdowns have also affected sales as total new premium payments also dropped to P46.16 billion, lower by 19.8 percent from P57.56 billion in 2019.
The commission attributed this drop to restrictions on face-to-face selling of insurance products.
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 in 2020, or an increase of 7.78 percent from P1.42 trillion in 2019.
This may be attributed to the growth in the industry’s total investments, both in traditional and segregated fund, by 6.72 percent year-on-year, from P1.39 trillion for the year 2019 to P1.48 trillion for the year 2020, the IC said.
TSB
