The Financial Markets Authority (FMA) has completed a thematic review of insurers’ first full year of reporting under NZ IFRS 17 Insurance Contracts, the accounting standard that came into effect for financial periods starting Jan. 1, 2023.
The rule replaces NZ IFRS 4 and introduces detailed requirements for the recognition, valuation, and disclosure of insurance contracts.
The regulator said the change has required insurers to modify internal processes, update systems, and develop new ways of presenting financial information to meet the standard’s principles-based framework.
According to the FMA, insurers encountered several obstacles during implementation. These included interpreting complex measurement rules, collecting and processing new types of data, upgrading financial systems, and ensuring staff had adequate technical training.
While the regulator observed that insurers generally demonstrated commitment to meeting the new rules, the quality and completeness of disclosures varied. Life insurers tended to provide more extensive reporting, reflecting the standard’s greater impact on their operations.
The review covered disclosures from 73 insurers, of which 27 were life insurers. Transition approaches were mixed:
Measurement practices split along product lines, with non-life insurers relying on the Premium Allocation Approach (PAA) and life insurers applying the General Measurement Model (GMM) or, where eligible, the Variable Fee Approach (VFA).
Most insurers (74%) used a bottom-up method for discounting liabilities, while just over a quarter did not discount short-tail obligations.
For risk adjustment of non-financial risk, 55% relied on the confidence level method and 34% used a cost-of-capital calculation.
On onerous contracts – those expected to generate losses – 62% reported none. About 7% identified more than 10% of their contracts as onerous, with the remainder reporting smaller proportions.
The FMA also noted that the move to NZ IFRS 17 affected equity positions differently across the market. Around 41% of insurers recorded a reduction of up to 10%, 30% reported increases, and 29% reported no impact.
The regulator highlighted several areas where reporting could improve:
The FMA said these shortcomings were not considered significant breaches, but they limited comparability across the sector. Most issues were resolved through direct engagement with the insurers concerned.
The FMA indicated it will continue to monitor reporting under NZ IFRS 17 as practices evolve.
Future reviews will assess how insurers apply measurement models, calculate risk adjustments, and disclose assumptions and judgements.
The authority said it intends to maintain active engagement with insurers, with the aim of improving clarity and consistency in reporting so that stakeholders can better evaluate financial performance and risk exposures.
