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New accounting practices will likely fundamentally alter financial reporting in the insurance sector, but won’t affect firms’ underlying financial condition, Moody’s Investors Service says.

In a new report, the rating agency said that the adoption of new international accounting standard IFRS 17 could have a material impact on some insurers, influencing their strategic choices.

The new standard will replace the existing approach of allowing insurers to use a wide variety of accounting practices for insurance contracts, which has historically made it difficult for investors and analysts to understand and compare insurers’ results.

Moody’s said the new standard, which is set to take effect in January 2022, is intended to improve the visibility of firms’ earnings, and to make insurance companies’ performance more comparable.

The financial impact of the new standard “will largely depend on insurers’ business mix and current accounting standards,” it said.

“Annuity writers and traditional life insurers with exposure to policies carrying high guaranteed rates of return, particularly in Germany, Korea and Taiwan, which are reserved using historic discount rates, are most likely to report a decline in equity,” it reported.

Additionally, in some markets, the new standard “could expose weak balance sheets” and may push firms to improve their capital positions, Moody’s said.

That being said, Moody’s doesn’t expect that the new accounting treatment will, on its own, drive any ratings changes.

“IFRS 17 will transform insurance accounting but won’t change insurers’ underlying economic position,” Moody’s analyst Helena Kingsley-Tomkins said in a statement.

“As we already look beyond reported figures to focus on the underlying economic picture, we don’t expect IFRS 17 to alter our view of insurers’ creditworthiness,” she added.