Changes in Accounting Standards for Insurance Contracts: Allianz and LPI Compliance

This article discusses the changes in accounting standards for insurance contracts and their impact on companies like Allianz and LPI. It covers the differences between MFRS 17 and IFRS 17, standard compliance by Allianz and LPI, and the disclosure requirements. The article also highlights the risks faced by insurance companies and the importance of maintaining high standards in governance.

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Table of Contents
1. Introduction of Allianz and LPI:..............................................................................................3
2. The changes and development on the related accounting standards of insurance contracts
and their differences including the disclosure requirements:..........................................................4
3. Standard Compliance by Allianz and LPI:...............................................................................7
4. Impact of changes on companies’ performance:................................................................12
SUMMARY...................................................................................................................................14
REFERENCES..............................................................................................................................15

1. Introduction of Allianz and LPI:
Allianz: Allianz Malaysia Bhd was established in 1890 as a transport and accident insurer. It is
a diversified insurance company that provides life and general insurance in Malaysia. The major
source of sales revenue for the company is insurance premiums, investment income as well as
fee and commission income.
Name and Address: Allianz Malaysia Berhad; Level 29, Menara Allianz Sentral 203, Jalan Tun
Sambanthan Kuala Lumpur Sentral 50470 Kuala Lumpur Malaysia.
Main Activities: Life and General insurance
Products and Services: Automotive, home, and personal insurance, fire, engineering, and
liability insurance.
Financial Highlights: Market capital RM 2.646 billion, Number of shares 176.89 million,
Earnings per share 278.41 cent, Price to earnings ratio 5.37, Dividend 65 cent, Return on equity
13.40%, Par value RM 1, Net earnings (2019) RM 360 million.
LPI: LPI Capital Bhd also known by London & Pacific Insurance Company Berhad, it is an
investment holding company and has enhanced insurance agency that gives a wide scope of
items. It was incorporated on 24 May 1962 as a private limited company. It got insurance license
on 9th April 1963 under Malaysian Insurance Act, 1963. LPI Capital’s business insurance
product portfolio develops its own line items by including. The organization offers adaptability
to its corporate clients by giving customized plans to little and fair size undertakings.
Name and address: London & Pacific Insurance Company Berhad; 6th Floor, Bangunan Public
Bank, 6, Jalan Sultan Sulaiman, 50000 Kuala Lumpur, Malaysia.
Main Activities: Composing premiums on protection arrangements that it offers to people and
organizations

Products and Services: General Insurance such as Marine, glass and burglary insurance
Financial Highlights: Issued Share capital of the company is RM 398,382,753 out of which
398,382,753 are ordinary shares. Earnings per share 80.92 cent, Return on Equity 16.44%,
Dividend 70%, Price to earnings (P/E) ration 17.77. Profit before tax (2019) RM 414,719,000.
2. The changes and development on the related accounting standards of
insurance contracts and their differences including the disclosure
requirements:
Insurance contracts: It is contract in which two parties involved; insurer and policy holder.
Insurer covers the significant insurance risk of policyholder in the event of uncertain future loss
[Cremer, Lozachmeur & Pestieau, (2016)].
Below is the report which signifies what changes and development made in insurance contracts
from 2018 to 2021:
From upcoming year 2021, will change whole analyses and reporting process of revenue and
profits from insurance contracts. Currently Malaysia is applying MFRS 17, the basic difference
between IFRS 17 and MFRS 17 is discussed below:
MFRS 17 IFRS 17
In this accounting method, primarily premiums
and net income earned from insurance contract
recognized upto coverage period. Insurers use
to amortize unearned profits on straight line
basis for lifetime of contract.
On the other hand in IFRS 17, divides revenue
and profit over lifespan of the contract.
Burden of tax is for one time only Burden of tax is for period of time until
contract is completed.
Scope:
A company should apply this Accounting standard to:
2018 2021

Insurance Contracts: It covers reinsurance
contracts company issues and holds.
Insurance contracts: It includes reinsurance
contract that company issues and holds.
Financial Instruments: It issues with
discretionary participation feature. For
disclosures policy holders requires financial
instruments.
Investment contracts: Contracts with direct
participation features provides entities to issue
insurance contracts.
Does not address: other sources of accounting
such as financial assets and liabilities hold by
insurers.
Does not address: secondary purpose of a
company for the provision of services for a
fixed pay. Unless it is taken as primary purpose
it doesn’t come under its scope.
Accounting standard is not applicable to:
2018 2021
Product warranties issued by manufacturer,
wholesaler or retailer.
Does not show assessment of risk of individual
customer in valuing price.
Employee’s assets and liabilities. Does not compensate contract by making cash
payments to the customer rather providing
service.
Contingent obligations of the contract
[Crainich, (2017)].
Risk does not transfer from uncertainty over
the cost of services.
Recognition:
MFRS 17:
Each portfolio must be subsidized into:
 Onerous contracts (aggregate cost is higher than actual benefit)
 Contracts with no significant possibility of becoming onerous
 The rest of contracts left
It will likewise put more noteworthy requests on data frameworks.
IFRS 17:
An entity shall recognize a group of insurance contracts it issues from the earliest of the
following:
 The beginning of the coverage period of the group of contracts

 The date when the first payment from a policyholder in the group becomes due
 For a group of onerous contracts, when the group becomes onerous.
Measurement:
MFRS 17:
Malaysian life insurers would be comfortable with estimating protection liabilities utilizing
evaluations of future incomes, regularly limited present qualities [Wang, & Huang, (2016)].
These bases of estimation have a few common things with the general model for estimating
protection liabilities, which incorporates:
 Cash flows need to be adjusted to show real time value of money
 Non- financial risk should be adjusted towards risk in reporting
 Contractual service margin (CSM) required to be used.
The general model is difficult so insurers can use a simplex model named premium allocation
approach (PAA) to measure liabilities for remaining coverage when:
 Contracts have 1 year or less than a year coverage period.
 The liability calculated from general model is not different from PAA.
To keep away from the expense of applying the general model, numerous safety net providers
are relied upon to put forth the attempt to decide if their agreements are qualified for the PAA.
IFRS 17:
On initial recognition, an entity shall measure a group of insurance contracts at the total of:
i. The fulfillment cash flows (“FCF”), which comprise:
 Future cash flow estimation
 An adjustments for calculating time value of money
 a risk adjustment for non-financial risk
ii. The contractual service margin (“CSM”).

An element will incorporate all the future incomes inside the limit of each agreement in the
gathering. The substance may appraise the future incomes at a more elevated level of
accumulation and afterward designate the subsequent satisfaction incomes to singular gatherings
of agreements.
Presentation:
Both MFRS 17 and IFRS 17 show same presentation:
An element will disaggregate the sums perceived in the statement of monetary execution into:
 An insurance service includes insurance revenue and expenses
 Insurance finance income or expenses.
Salary or costs from reinsurance contracts held will be introduced independently from the costs
or pay from protection contracts gave.
Disclosures:
MFRS 17:
A company should disclose in their financial statements:
 Revenues generated quarterly from policy holders.
 Balance sheet and any unearned profits.
IFRS 17:
An entity shall disclose qualitative and quantitative information about:
 Total earnings generated through insurance contracts.
 Changes in significant judgment while applying IFRS 17.
 Nature and frequency of risk occur due to insurance contract should mention.
3. Standard Compliance by Allianz and LPI:

Standard Compliance: A standard compliance is set of rules and regulations which are written on
document to complaint the company to particular rules and regulations applied by insurance
companies or higher authorities. This statement is also known as certificate of conformance
[Arel-Bundock, Peinhardt, & Pond, (2019)]. According to this rule Insurers are required to
explained control policy to these authorities about how appropriately company controls its
internal activities and procedures and also to check it with regulatory framework.
Standard compliance by Allianz and LPI:
European insurers doing their business activities in highly regulated economic surroundings; this
added new risks and required innovation to cope up these types of risks. Even after application of
protective measurements; some new obligations of compliance functions has imposed on
insurance companies. Allianz and LPI also required maintaining high standard in their
company’s structure or governance. Due to facing bankruptcies situations; European high
authorities had made it compulsory for all companies to do utmost caution and apply appropriate
measures for their solvency and increasing consumers’ trust over them.
There are mainly three major risks which make it compulsory for Allianz and LPI to make their
standard compliance; these risks are discussed below:
 Insurance method risks: This risks covers various activities such as management of
technique, timely progression of insurance contract, chance of loss making, probability of
bankruptcy, misguided by customers, hidden information in terms and conditions, any
loophole in policies and occurrence of maximum claim at a time due to natural calamity
or any destructive accident for instance 100 employees working in same company having
office in same building have insured themselves with Allianz. Due to some technical
problem whole building thrashes with large fire and all 100 employees died on the spot.
In that case company has to settle 100 employees claim at a time which could be major
issue for the company.
 Financial risks: These risks covers finance related activities such as return on equity,
liquidity, credit, foreign exchange risks and disputing in contract with third party.
 Non-compliance risks: These risks covers all those activities which are not related with
any standard rules and regulations like internal procedure related issues, breach of

obligation by staff, information mechanism failure, poor advice by experts and
detrimental consequences within company. Hence non compliance risks should be
accountable for advices on services sold by the company.
This compliance contains rules and regulations must for the company to follow:
 Reporting should be prepared under Insurance Act: The Bank Negara of Malaysia is a
regulatory body who authorizes the Malaysian Insurance company. The reports can be filled
by both online or offline mode, the report structure should same as mention by Bank
Negara. The insurance company has to intimate the bank about its financial performance.
Additional to this, it is compulsory for Allianz and LPI to disclose risk involvement,
policyholder’s information and how much claim is settled by the company to board
members of the Bank. Maintaining solvency ratios, debt equity ratios and income statement
is must for both Allianz and LPI and it should be disclose before required time period.
 Returns by insurer having business outside Malaysia: Allianz has setup its business in many
countries, so its mandatory for the company to submit four certified copies of every balance
sheet, financial statement and reporting (statement should be audited by authorized person)
to Bank Negara. The report should disclose the assets hold by the company in Malaysia and
outside country before specified period of time.
 Report should be prepared under companies Act: All public listed insurance companies
should register themselves under companies act, 2013. Allianz and LPI requires to
compliance the provisions of companies act 2013 as a public company. The arrangements
for assertion from chiefs, documenting of the goals to the Ministry of Corporate Affairs or
some other arrangements as and when appropriate will be gone along properly.
The Insurance Company needs to record the different board goals identified with
arrangement or acquiescence of executives, issue of offers, arrangement of reviewer and so
on with ROC. The annual return must be filed within 60 days, Bank Negara issued
Corporate Governance guidelines for all Insurance company.
 Reporting under FEMA: Those insurance companies having foreign investment or
promoters are regulated under the provisions of FEMA. Allianz and LPI both have foreign
inverters so they have to disclose Bank Negara about foreign inflow and outflow

transactions within given time. Additional to this company need to file return of this foreign
flow in the structure provided by Insurance authority.
Disclosure by Allianz:
DISCLOSURE
Name of the company : Allianz Malaysia Bhd
Date of establishment : 1980
Types of products and services : Life and general insurance
Principal activities:
The Company is principally engaged in investment holding activities, whilst the principal
activities of the subsidiaries to the financial statements. There has been no significant
change in the nature of these activities during the financial year:
Net profit for the year attributable to owners of the company RM 156,347,000
Dividends:
Since the end of 2018, the amount of dividends paid by the company were as follows:
 Interim dividend of 14.40 sen per Irredeemable Convertible preference shares, total
were paid on 14th February 2019;
 Interim dividend of 12.00 sen per ordinary share totaling RM 21,022,000 were paid
on 14th February 2019.
RESERVES AND PROVISIONS
There were no material transfers to or from reserves and provisions during 2018, review
except as disclosed in financial statements.
ISSUE OF SHARES
Company increased its ordinary shares to 176,688,439 by issuing 2,105,501 ordinary
shares, the total share capital of the company is amounted to RM 771,028,887
OPTIONS GRANTED FOR UNISSUED SHARES
No option was granted to any person to take up unissued shares of the company during
financial year.
INDEMNITY AND INSURANCE COSTS
The group and the company maintain a Directors’ and Managers’ liability insurance for the
purpose of section 289(5) of the companies act 2016 in Malaysia. The amount of insurance
premium paid during the financial year is RM52,831.
There are no indemnity given to auditors and underwriters of the company in respect of
liability for any act but professional indemnity insurance is given to auditors during 2018.

Disclosure by LPI
DISCLOSURE
Name of the company : London & Pacific Insurance Company Berhad
Date of establishment : 1962
Types of products and services : General Insurance
Principal activities:
The Company is principally engaged in investment holding activities, whilst the principal
activities of the subsidiaries to the financial statements. There has been no significant
change in the nature of these activities during the financial year:
Net profit for the year attributable to owners of the company RM 102,152,000
Dividends:
Since the end of 2018, the amount of dividends paid by the company were as follows:
 Interim dividend of 48.00 sen per Irredeemable Convertible preference shares, total
were paid on 28th February 2019;
 Interim dividend of 22.00 sen per ordinary share totaling RM 5,030,000 were paid
on 28th February 2019.
RESERVES AND PROVISIONS
There were no material transfers to or from reserves and provisions during 2018, review
except as disclosed in financial statements.
ISSUE OF SHARES
Company increased its ordinary shares to 113,701,000 by issuing 1,124,001 ordinary
shares, the total share capital of the company is amounted to RM 435,100,050
OPTIONS GRANTED FOR UNISSUED SHARES
No option was granted to any person to take up unissued shares of the company during
financial year.
INDEMNITY AND INSURANCE COSTS
The group and the company maintain a Directors’ and Managers’ liability insurance for the
purpose of section 289(5) of the companies act 2016 in Malaysia. The amount of insurance
premium paid during the financial year is RM12,500.
There are no indemnity given to auditors and underwriters of the company in respect of
liability for any act but professional indemnity insurance is given to auditors during 2018.

4. Impact of changes on companies’ performance:
There was huge impact of changing in MFRS to IFRS faced by Malaysian companies especially
Allianz and LPI. These changes include replacement of whole old accounting software’s with
new modified systems supporting IFRS.
There will be huge impact of these changes on certain elements of Allianz and LPI:
1. Net incomes: Ordinarily, the showcasing spending that safety net providers have for new
items is regularly subject to the foreseen first-year incomes created by that item. On the
off chance that the principal year incomes are presently going to be half or not as much as
what it was, does the safety net provider currently need to divide its promoting spending.
Allianz has reported 43% jump in net profit for the third quarter of 2019 but after
implication of IFRS accounting standard; it is estimated that it will fall by 9%. On the
other hand LPI also records more than 35% boost in net income but with the same
downfall impact on LPI is estimated 10% on its net profit. Impact on LPI is due to large
amount of deferred liabilities and taxes present in company’s statement.
2. Premiums: The board used to be essentially compensated based on composed premiums.
Be that as it may, under the new standard, premiums will be less applicable as a
presentation metric and will supplanted by this new idea of benefit after some time,
which is called contract administration edge. In this way, the board's compensation
agreements presently must be changed as well. The impact of change in premium amount
estimated is not huge. As Both Allianz and LPI have to increase its premium rate by 4 to
5% for life insurance and more than 10% on different general insurances. But the
company will get tax benefits and subsidies for helping economically weaker sections.
3. Speculation contract: MFRS 17 will likewise observe safety net providers having to
unbundle the "speculation" segments from certain protection contracts. This is on the
grounds that some protection contracts come packaged with speculation parts. So as to
accurately gauge the incomes identified with the protection contract, particular
speculation segments, installed subsidiaries and other unmistakable execution
commitments inside the protection agreement should be isolated. These segments should

be considered for estimation under various models, for example, IFRS 9 or IFRS 15.
Forever safety net providers specifically, this will require a considerable amount of
exertion and keeping in mind that it isn't relied upon to change the meaning of protection
contracts at the item level, certain agreements at the individual arrangement level may
bomb the test now under MFRS 17. The bookkeeping contemplations pushing ahead will
no uncertainty become progressively mind boggling.
4. Net provider’s presentation: In spite of the fact that complex, MFRS 17 is by and by
observed as a positive advancement for the business. It will make things increasingly
straightforward and simpler for the financial specialist to contrast a safety net provider's
presentation and another, paying little heed to their ward.
5. Insurance agency: As of now, there is nobody standard for protection gets that the
business follows. "On the off chance that the safety net provider presently needs to part
the agreement in an endorsing and venture segment, the speculator can without much of a
stretch find in the fiscal reports which are the organizations that are making the greater
part of their benefit from the venture edge rather than being acceptable guarantors. A
financial specialist might not have any desire to put resources into an insurance agency
that makes the greater part of its benefit on ventures on the grounds that there are
different organizations out there that are vastly improved at that.
Overall impact: As per Malaysian Accounting Standards Board (MASB) director MFRS 17 will
"help speculators and others better comprehend safety net providers' hazard presentation,
productivity and money related position.

SUMMARY
Allianz and LPI is two insurance public listed company dealing in both life and general
insurance. Malaysian practice is usually to assess for loss-making contracts at the portfolio level.
All the more harsh bookkeeping will regularly mean prior acknowledgment of misfortune
making contracts, in any event, when an entire portfolio is productive. Also, general back up
plans typically utilize an income way to deal with measure liabilities for exceptional cases.
The PAA is progressively lined up with existing practice for general back up plans; however
depends on premium receipts. Conversely, existing Malaysian practice is to perceive unmerited
premium liabilities, which incorporate premiums got and receivable.
According to this compliance; Allianz and LPI requires to file monthly, quarterly and annually
reports to the Regulatory in specified time. The arrangements of Directors, Auditors, yearly
recording, issue of offers and so forth will be agreed. If there should be an occurrence of
inconsistency between the Acts the stringent arrangements will win. A standard compliance is set
of rules and regulations which are written on document to complaint the company to particular
rules and regulations applied by insurance companies or higher authorities. This statement is also
known as certificate of conformance. Insurance contract is the mutual agreement, where both the
parties agreed to terms and conditions built between them. Insurer is only liable to pay the
amount covered in insurance contract. Insurance companies have to gone through changes, as
they will require application of new accounting standard International Financial Reporting
Standard 17( IFRS 17). The impact of IFRS 17 on Allianz and LPI will be positive but company
requires some analytical tools to adjust with new changes, as a large company it needs to modify
many things in financial statement analysis.

REFERENCES
Cremer, H., Lozachmeur, J. M., & Pestieau, P. (2016). The design of long term care insurance contracts. Journal of
health economics, 50, 330-339.
Arel-Bundock, V., Peinhardt, C., & Pond, A. (2019). Political Risk Insurance: A New Firm-level Data Set. Journal of
Conflict Resolution, 0022002719875754.
Crainich, D. (2017). Self‐Insurance With Genetic Testing Tools. Journal of Risk and Insurance, 84(1), 73-94.
Wang, C. P., & Huang, H. H. (2016). Optimal insurance contract under VaR and CVaR constraints. The North
American Journal of Economics and Finance, 37, 110-127.
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https://www.malaysiastock.biz/GetReport.aspx?file=AR/2019/2/26/8621%20-
%201742262107589.pdf&name=Annual%20Report%202018%20of%20LPI%20Capital
%20Bhd-Part%202.pdf
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%201306337641548.pdf&name=Allianz%20AR%202018_Financial.pdf
https://www.wsj.com/market-data/quotes/MY/1163/financials/annual/income-statement