Why are the new IFRS too important to be ignored for investors relations?
Investors Relations and why the need to focus on IFRS Insurance
For the first time in their history insurance companies in the European Union will be measured in capital and profit terms on the same uniform basis after the adoption of Solvency II and IFRS Insurance (with IFRS Insurance we refer to the series of new accounting pronouncements including IFRS 4 Phase II on insurance liabilities and IFRS 9 on investments and derivatives).
- This major regulatory change offers the potential to convey more transparent and consistent information for analysts, investors, rating agencies and regulators.
- The key benefit is more efficient capital markets for insurers’ stocks and debts and lower cost of capital
The opportunity to increase investors’ appetite for insurance stocks and debts demands proactive management.
The transition to Solvency II overlaps the adoption of IFRS Insurance.
- This regulatory process appears more complex than previous reforms (such as Sarbanes-Oxley) and we believe a pro-active management of the communication of its impacts with the relevant stakeholders will generate material benefit to insurers:
- IFRS profit will be radically affected by the new requirements. The novelties need to be linked to past KPIs and the known strategy would have to be presented afresh using the new Solvency II and IFRS Insurance metrics Investors communication is most effective when it reflects a consistent message/language from all levels of the company:
- in the external and internal financial information as well as in how executive performance is rewarded Given the efforts made to date to prepare for Solvency II, insurers should not wait the drive to IFRS adoption to manage this transition. Instead, they should act now to enable management to guide the market ahead of the adoption of Solvency II and IFRS Insurance.
- The main risk to be mitigated is the formulation of market consensus that would not be met by the actual level of profit and capital when presented under the new bases.