The Sharia insurance industry in Indonesia has demonstrated positive progress over the past few decades, although in the last decade there has been a decline in contribution growth, especially in the general Sharia insurance sector, which at one point even experienced negative contributions. The average contribution growth rate of the Sharia insurance industry over the past 10 years is 15.20%, although during the period from 2002 to 2011, the average growth was significantly higher at 51.89%.

Currently, there are 58 Sharia insurance entities, with 43 operating as Sharia business units (UUS) and 15 functioning as fully-fledged Sharia insurance companies. Of these, there are 29 Sharia life insurance businesses, 25 general Sharia insurance businesses, and 4 Sharia reinsurance businesses. Out of the 25 general Sharia insurance businesses, 19 are UUS that have the potential for spin-off, while 6 have already become fully operational Sharia insurance companies (O.J.K., 2023).

However, the Sharia insurance industry still faces several challenges, such as market share, capital, a shortage of skilled professionals, and the need to implement accounting standards that must comply with international standards, particularly IFRS 17. PSAK, or the Statement of Financial Accounting Standards, is a standard used by public companies, including insurance companies, banks, state-owned enterprises (SOEs), and other public companies, as a guideline for preparing financial statements. PSAK can be adjusted annually to reflect evolving conditions, such as through the issuance of new PSAKs or revisions to older ones. One of the key considerations in issuing new PSAKs is alignment with IFRS, the international financial reporting standard.

The convergence of IFRS with PSAK aims to facilitate the comparison of financial statements across countries. However, the process of adopting IFRS by a country becomes more complex due to differences in legal structures, regulations, and economic conditions that may differ from Western countries (Deyuu Alemi & Pasricha, 2016). Nonetheless, IFRS adoption provides more comprehensive information for stakeholders, enhancing the effectiveness and transparency of corporate financial reporting (Lema et al., 2017).

The implementation of IFRS 17 is designed to ensure that insurance companies in various countries can calculate insurance contracts using a consistent method that is easily understood by investors (Falah Al-Mohammadi Porf DrBushra Abdullah Al-Mashhdani, 2021). (Firmansyah, 2019) argues that IFRS convergence in Indonesia has not yet had an optimal impact on improving corporate financial statements. However, according to (Sinatra et al., 2022), IFRS convergence in Indonesia has been able to enhance the relevance of financial statements and provide a stronger basis for investors in decision-making.

One form of IFRS convergence into PSAK is the revision of PSAK 108, which relates to Sharia insurance transactions and adopts principles from IFRS 17 regarding insurance contracts. Although PSAK 108 is considered to be similar to IFRS 17, several aspects still require further adjustments

Sharia insurance is a set of agreements consisting of a contract between the Sharia insurance company and policyholders, as well as agreements among the policyholders, aimed at managing contributions based on Sharia principles to provide mutual help and protection (Law No. 40, 2014). According to the National Sharia Board of the Indonesian Ulema Council (DSN MUI), Sharia insurance is governed by the general foundation outlined in its fatwa, specifically Fatwa DSN MUI No. 21/DSN-MUI/X/2001, which states: "Sharia insurance (ta’min, takaful, and tadhomun) is an effort for protection and mutual assistance among a group of people in the form of investment of tabarru’ funds that provide risk-sharing patterns through Sharia-compliant contracts"(Antoni, 2021).

IFRS 17 – Insurance Contracts was issued by the IASB in 2017 after nearly two decades of discussions regarding accounting standards for insurance contracts. IFRS 17 has two main objectives: to enhance the transparency of insurance companies' financial statements and to align accounting practices across different countries (Muskita & Safitri, 2019).

For Sharia insurance, the Financial Accounting Standards Board of the Indonesian Institute of Accountants has established PSAK 108, which regulates Sharia insurance transactions. In Paragraph 1, it is stated that this standard is designed to govern the recognition, measurement, presentation, and disclosure related to Sharia insurance transactions (Siregar, 2019).

This study employs a descriptive analysis research method with both qualitative and quantitative approaches (Emzir, 2012). Qualitatively, the research uses a descriptive analysis approach through interviews, while quantitatively, it applies the Analytical Hierarchy Process (AHP) method.

AHP (Analytic Hierarchy Process) is a model used to simplify complex problems. It is a mathematics-based procedure that is highly effective and suitable for evaluating qualitative attributes. This method features a hierarchical structure, starting from selected criteria and moving to more specific sub-criteria.

The criteria are then compared using the AHP scale table, as shown in Table 2.

Suryadi and Ramdhani define AHP as a comprehensive decision-making model. AHP has the ability to address problems involving multiple objectives and criteria, based on preference comparisons of each element within the hierarchy. The following are some advantages of the AHP model:

The principle of AHP is to simplify complex, unstructured, strategic, and dynamic problems into smaller components and arrange them in a hierarchical structure. Each variable is then assigned a numerical value subjectively to indicate its relative importance compared to other variables. Based on various considerations, a synthesis is conducted to determine the variables that have high priority and the most significant impact on the outcomes within the system.

The use of AHP begins with creating a hierarchical structure of the problem (decomposition), conducting pairwise comparisons between variables, performing analysis/evaluation, and determining the best alternative. Furthermore, Suryadi and Ramdhani outline that the steps in the AHP method are as follows:

Criteria and alternatives are assessed through pairwise comparisons. According to Saaty, for various problems, a scale of 1 to 9 is the best scale for expressing opinions. Comparisons are made based on the decision-maker's judgment by evaluating the importance level of one element relative to another. The pairwise comparison process begins at the top level of the hierarchy aimed at selecting criteria, for example, A, followed by selecting elements to be compared, such as A1, A2, and A3. The arrangement of the compared elements will appear as shown in the matrix table below:

To determine the relative importance of elements, a numerical scale from 1 to 9 is used. When an element is compared to itself, it is assigned a value of 1. If element iii is compared to element jjj and receives a certain value, then element jjj compared to element iii will have the inverse value. In this AHP, the assessment of alternatives can be done using the direct method, which is a method used to input quantitative data. Typically, these values come from prior analysis or from a detailed understanding and experience of the decision problem. If the decision-maker has substantial experience or understanding of the decision problem at hand, they can directly input the weighting for each alternative.

For each criterion and alternative, pairwise comparisons must be conducted. The relative comparison values are then processed to determine the ranking of all alternatives. Both qualitative and quantitative criteria can be compared according to the established assessments to generate weights and priorities. The weights or priorities are calculated through matrix manipulation or by solving mathematical equations. Considerations for the pairwise comparisons are synthesized to obtain the overall priorities through the following steps:

a. Square the matrix resulting from the pairwise comparisons.

b. Calculate the sum of values for each row, and then normalize the matrix.

a. Cardinal Relationship: aij . aik = aik

In practice, some deviations occur, resulting in the matrix not being perfectly consistent. This inconsistency arises from an individual's preferences. The calculation of logical consistency is performed by following these steps:

All elements are logically grouped and consistently ranked according to a logical criterion. The weight matrix obtained from the pairwise comparisons must have cardinal and ordinal relationships. These relationships can be represented as follows (Suryadi and Ramdhani, 2008):

b. Ordinal Relationship: if Ai>Aj, Aj>Ak, then Ai>Ak

If the consistency ratio is < 0.1, the data calculation results can be justified. The value of RI is based on research conducted by Saaty, as shown in Figure 2 below:

The analysis of the two options for the implementation of IFRS 17 in Islamic insurance was conducted using the AHP (Analytic Hierarchy Process) method, consisting of two stages: level 1 and level 2. Level 1 includes the initial level of the two options, which are classified as having low or high impact. Subsequently, the analysis proceeds to level 2, which involves examining the sub-criteria of the implementation action options that affect the RBC, consisting of three choices: low impact, medium impact, or high impact (Rio Eldianson, 2024), as illustrated in Figure 1.

The respondents consisted of five experts in Islamic insurance, particularly in the field of accounting. Two respondents were directors of Islamic life insurance companies overseeing accounting, two others were heads of accounting from Islamic general insurance companies, and one respondent was from the Sharia Standards Board of the Indonesian Institute of Accountants (IAI).

During the data collection process, the method employed was a questionnaire. This method was used to solicit the opinions of respondents regarding the importance of each criterion related to the implementation actions. Respondents were asked to fill out the questionnaire and provide ratings on the relative importance between one factor and another, using a predetermined scale or level of assessment.

Based on the output results above, it can be concluded that in the implementation action of IFRS 17 from the changes to PSAK 108, 34% indicate a low impact, while 66% predominantly indicate a high impact. The revision of PSAK 108 by the Sharia Standards Board of the Indonesian Institute of Accountants (IAI) not only follows IFRS 17 but also adds the structure for land funds, which had not been included in the standard previously, even though it is mentioned in the DSN fatwa (Rio Eldianson, 2024).

As shown in Figure 7, the Sub-Action Options for Impact on RBC generated through the AHP method are Low (20%) and Medium and High both at 40%. The potential impacts of the revision of PSAK 108 related to IFRS 17 may require the sharia insurance industry to make changes to existing application systems, in addition to adjustments in their accounting records (Erwin Noekman, 2023).

Based on the AHP analysis results above, it can be seen that 66% of the implementation of IFRS 17 concerning the revision of PSAK 108 will have a significant impact on changes in the recording, measurement, and presentation of financial statements of Islamic insurance companies. The impact of these changes on the RBC (Risk-Based Capital) of insurance companies, both for the company’s RBC and the tabarru RBC, shows that 20% indicate a low impact, while 40% state a medium and high impact.

However, the actual impact largely depends on the type of insurance business; the effects differ between Islamic life insurance companies and Islamic general insurance companies, as well as the impact on the dominant products held by each company. Other impacts include changes in the company’s operating systems, an increasing demand for actuarial human resources, as well as the adequacy of capital strength and tabarru fund balances (Soleman & dkk, 2023).

Based on the analysis, the implementation of IFRS 17 in the revision of PSAK 108 in the Indonesian Islamic insurance industry can have a significant impact on the recording, measurement, and presentation of financial statements for Islamic insurance companies. Approximately 66% believe that the implementation of IFRS 17 has a high impact on companies, while the remaining respondents assess this impact as low. Regarding the changes in RBC (Risk-Based Capital) for insurance companies, 20% indicate a low impact, while 40% each that the impact is medium and high.

The impact of implementing IFRS 17 also varies between Islamic life and general insurance companies, particularly concerning the risk-based capital (RBC) of the company's funds and the RBC of the tabarru’ fund. Additionally, the implementation of this standard requires adjustments in the company's operating systems, an increase in actuarial expertise, and strengthening of capital.