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LONDON (Reuters) - Insurers in over 100 countries face a "once in a lifetime" accounting change from January 2021 with the introduction of a uniform international book-keeping standard, details of which will be published on Thursday.
Twenty years in the works, the new regulation seeks to make it easier for investors to compare how much insurers like Axa, Prudential and Generali earn from policies by prising open a "black box" of opaque national practices.
Analysts say it will mean billions of euros in compliance costs as insurers ramp up IT systems to recalculate millions of contracts each reporting period.
The new rule from the International Accounting Standards Board (IASB) will affect 450 listed insurers who manage $13 trillion in assets.
IASB Chairman Hans Hoogervorst said poor quality accounting has put off investors and the benefits of the new standard will outweigh costs by a wide margin.
"We do not wish to belittle the costs. The increased transparency of the market should lead to improved investability of the sector. In the long run, it should lead to a lowering of the cost of capital for the industry," Hoogervorst told Reuters.
IASB accounting rules are applied across the European Union, in many Asian countries and Canada, but not in the United States, which is working on its own reform.
Under "IFRS 17" insurers will have to calculate income from policies like motor insurance to annuities using interest rates and other market information updated for each reporting period.
This ends the practice of insurers using data from when the policy was taken out, which can be years old in some cases.
"It's a big deal as it means accounting policies will change for all contracts, and profits could be more volatile than today," said Kevin Griffith, who is responsible for IFRS 17 at accountants EY.
"More of the profit from a contract will be deferred over the contract period, which could mean increased volatility in earnings. Market reaction to this will depend on how companies manage the message to investors as a company's fundamentals have not changed," Griffith said.
Advisory firm Willis Towers Watson said it may affect the ability to pay dividends and management bonuses, and meet market-wide performance benchmarks.
Accounting firm Deloitte said the "once in a lifetime change" would not come cheap.
"This effort will likely generate implementation costs for many insurers as large as those incurred in the European Union for the adoption of the Solvency II regulations - estimated between three and four billion euros for the EU insurers as a whole," said Mark McQueen, responsible for IFRS 17 at Deloitte.
Insurance Europe, an industry body, said very few insurers will have seen full versions of the text before its release.
"The implementation cost and effort for IFRS 17 will be substantial, but a proper cost-benefit analysis can only be performed once the final text is available," said Insurance Europe's deputy director general Olav Jones.
Hoogervorst was confident the EU would endorse the new rule for use across the bloc, and also expected Britain to apply it even though it would come into effect after Brexit in 2019.
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Reporting by Huw Jones; Editing by Susan Fenton