In the short term, the ratings agency said the introduction of IFRS, previously known as IAS, would be significant, leading to greater reported earnings volatility in the market.
But as S&P credit analyst Rob Jones explained: ‘Ultimately, however, both the capital markets and policyholders will reward insurers for their improved transparency, rather than penalising them for their less predictable results.’
S&P warned that applying IFRS would result in significant cost increases in an industry where margins are already under pressure.
It could also depress some companies stock prices and increase the cost of raising capital in the short term.
However applying IFRS would allow companies to better communicate the risk investors face to their earnings.
‘Disclosure and transparency will be a key competency for success in the new accounting environment,’ Jones added.
‘Insurers’ balance sheets have been viewed with substantial mistrust in the recent past, but with high-quality disclosure, IFRS could ultimately result in lower volatility in stock prices.’
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