Introduction to IFRS 17

IFRS 17 Insurance Contracts

The International Accounting Standards Board (IASB) published IFRS 17 on 18 May, which is designed to achieve the goal of a consistent, principle-based accounting for insurance contracts. The new Standard requires insurance liabilities to be measured at a current fulfilment value and provides a more uniform measurement and presentation approach for all insurance contracts. The new financial reporting standard IFRS 17 will undoubtedly represent the most significant change to insurance accounting requirements in over 20 years.

IFRS 17 will require organizations to ensure data governance, lineage and transparency across the entire reporting chain. This includes a wide spectrum of data that will be used, from historic or current data (e.g. policy and premium data or data to produce the risk adjustment) to forward-looking data (e.g. data used to produce cash flow projections).The detailed requirements are markedly different from existing models by the organization in a number of critical aspects that will:

  • Change profit emergence patterns
  • Speed up the recognition of losses on contracts that are expected to be onerous*1
  • Add complexity to valuation processes, data requirements, assumption setting and analyzing and communicating results

According to me, the most efficient way to approach this will be through an integrated operating model and technology platform for Finance and Actuarial, enabling them to work as one unified team with smoothing calculation and reporting system. The organization can apply the Standard retrospectively approach or the fair value approach. Those who are already applying IFRS 9 may retrospectively re-designate and re-classify financial assets held in respect of activities connected with contracts within the scope of the Standard.

The organization shall measure a group of insurance contracts at the total of:

  1. the fulfilment cash flows (“FCF”), which comprise:
    1. estimates of future cash flows;
    2. an adjustment to reflect the time value of money and the financial risks associated with the future cash flows; and
    3. a risk adjustment for non-financial risk *2
    4. the contractual service margin (“CSM”) *3

The organization shall present in profit or loss revenue arising from group of insurance contracts issued and insurance service expenses arising from them, comprising incurred claims and other incurred insurance service expenses. Revenue and insurance service expenses shall exclude any investment components and premiums (if that information is inconsistent with revenue presented.

An extract from an article*4 posted by Mr. Sai Srinivas Dhulipala:

In the current reporting, the premium / contribution received by an insurer is shown as revenue, even though the underlying profitability of the contracts is completely different. Hence it is difficult to make out the financial soundness of the business written by the insurer. The upgrade is to compare insurance revenue as per the new standard, this can change the rankings significantly and hence the strategy of the insurer has to change accordingly for the motive to capture the market. The very definition of market share will have to change now. In the end, this will turn out to be a great opportunity for the insurers to review their strategy. They can review their priorities and re-orient their efforts in the right direction. This will ultimately result into better performance by the insurers and industry.

*1 An onerous contract is a contract in which the aggregate cost required to fulfill the agreement is higher than the economic benefit to be obtained from it. Such a contract can represent a major financial burden for an organization.

*2 The compensation an organization requires for bearing the uncertainty about the amount and timing of the cash flows arising from non-financial risk as the entity fulfils insurance contracts.

*3 A component of the carrying amount of the asset or liability for a group of insurance contracts representing the unearned profit the entity will recognise as it provides services under the insurance contracts in the group.


Niharika Threja
Niharika has Graduated in B.Com (H) from DU and cleared 3 exams CT1 CT3 and CT5. She have good command over Ms Word, Excel(Advance) and PowerPoint and in languages both Hindi and English. She is able to handle Number, Maths, Estimations etc.

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