What you need to know:
- Insurance Regulatory Authority says the new financial reporting standards require companies to inject more capital, which might result into mergers for some and acquisitions for others
Insurance Regulatory Authority (IRA) anticipates a new wave of mergers and acquisitions in the insurance industry over new international financial reporting standards (IFRS 17).
Mr Ibrahim Kaddunabbi Lubega, the IRA chief executive officer, said the new financial reporting standards require companies to inject more capital, which might result into mergers for some and acquisitions for others.
Mr Kaddunabi was speaking at a stakeholder workshop, where he said: “In insurance, there will be mergers and acquisitions,” noting that companies that cannot merge, will be required to inject more capital or be ready to be acquired.
IFRS 17, which started working in January 2023, is a new reporting standard that requires insurers to use a uniform accounting model for all contracts.
It seeks to make it easier for investors and analysts to compare financial performance of different companies.
The new standards replace IFRS 4, which allowed use of a wide range of accounting policies and practices but, according to Ernst & Young, created a chaotic system of disparate practices making it difficult to assess the underlying economics of insurance contracts.
The standards require that companies present insurance service results, including presentation of insurance revenue, separately from insurance finance income or expenses and make an accounting policy choice of whether to recognise all insurance finance income or expenses in profit or loss or to recognise some of that income or expenses in other comprehensive income.
At the close of last year in a meeting with regulators of east, central and southern Africa, it was confirmed that Uganda was ahead of all other players, except South Africa on the implementation of IFRS 17.
This, Mr Kaddunabbi noted, was good, encouraging insurance companies to interest themselves in the international financial reporting standards.
The new requirements set a precedent for insurance companies to invest enough capital to remain solvent. A report by Ernst & Young shows the new reporting standards require companies to make changes to their systems and processes, to ensure compliance.
Companies will be required to develop new or adapt existing actuarial models, implement new software systems, leverage opportunities for automation and expand existing financial reporting processes to fit into IFRS 17 standards.