On October 15, 2024, the Colombian National Government issued Decree 1271, a significant step towards modernizing accounting for the insurance sector in the country. This standard incorporates International Financial Reporting Standard (IFRS) 17 on Insurance Contracts into the Sole Regulatory Decree 2420 of 2015, seeking to align local accounting practices with international standards and ensure greater transparency and comparability of financial information.
The decree, promoted by the Ministries of Commerce, Industry and Tourism, Finance, and Public Credit, was developed based on recommendations from the Technical Council of Public Accounting (CTCP). The new framework includes Technical Annex No. 01 of 2024 to the existing set of 2015 annexes and establishes specific provisions that facilitate the implementation of IFRS 17.
Decree 1271, which will come into force on January 1, 2027, introduces several new features, including defining the “contractual service margin.” This margin represents the unearned profit that insurers can recognize when providing services. The decree also contemplates new measurement methods for insurance contracts, such as the general approach and a simplified approach for allocating premiums.
The decree’s measures seek to simplify the transition and allow insurance companies to adequately prepare for the new requirements. Thus, provisions have been introduced on the level of aggregation, the measurement of future cash flows, and the treatment of reinsurance contracts. In addition, the necessary presentation and disclosure requirements will be addressed, which promises greater clarity in the financial statements.
The decree’s transition regime is gradual, allowing insurers to recognize the impacts of these changes in a phased-in manner over a period of up to ten years. This strategy will reduce the adverse effects on their financial statements and facilitate an orderly adoption of the standard.
A highlight of the decree is the delegation of responsibilities to the Superintendency of Finance, which will have the power to establish additional accounting and financial reporting standards and guidelines for managing technical reserves. This approach seeks to ensure a consistent application of the standard and recognizes the particularities of the Colombian insurance market.
Among the country’s simplifications, specific provisions are offered in measuring reserves, risk adjustments, and particular accounting treatment for insurance contracts with direct participation characteristics. In addition, entities are allowed to choose between three transition approaches: complete retrospective, modified retrospective, and fair value, according to their circumstances and the availability of historical information.
The implementation of Decree 1271 is a fundamental step in the convergence towards globally accepted accounting principles, in line with Law 1314 of 2009, which seeks to improve the quality of financial information in Colombia. With the repeal of the previous IFRS 4, the country is moving towards a more modern and efficient accounting practice in the insurance sector, strengthening the confidence in the market and the integrity of the entities operating in it.
See Decree 1271 here.