A fundamental change to the reporting for insurance contracts.
After twenty years of development, the International Accounting Standards Board (IASB) published IFRS 17 ‘Insurance Contracts’. The Standard is effective for annual periods starting on or after 1 January 2021 and allows early adoption. It supersedes IFRS 4‘Insurance Contracts’, which served as an interim solution since 2004 and allowed diverse local GAAP accounting practices.
IFRS 17 aims to make insurers’ financial statements more useful, achieve consistency across jurisdictions and insurance products, and reflect the true underlying financial position and financial performance of insurance contracts.
IFRS 17 - the fundamental change
The Standard introduces measurement principles for insurance contracts requiring:
- current, explicit and unbiased estimates of future cash flows at each reporting date
- discount rates that are market consistent and reflect the characteristics of the contracts cash flows
- explicit adjustment for non-financial risk.
Day one profits should be deferred as a contractual service margin and allocated systematically to profit or loss as entities provide coverage and other services, and are released from risk.
Revenue is measured by the change in the contract liability covered by consideration and excludes investment components.
A separate measurement model applies to reinsurance contracts held. Modifications are allowed for qualifying short-term contracts and participating contracts.
Increased disclosure requirements apply.
Getting to grips with IFRS 17
IFRS 17 rewrites the rulebook for insurance reporting. It will transform data, people, technology solutions and investor relations. Over the next three years, we expect the key focus areas for entities to be:
- understanding the financial and operational impacts on transition and for new business
- implementing efficient data collection and storage solutions, and streamlining production processes and IT systems
- developing and explaining new performance measurement and business steering metrics.
A strategic approach to IFRS 17 transition could give CFOs powerful insight on risk and performance drivers and create a change agent to harness entities’ resources.
This guide is designed to get you ready for IFRS 17. It explains the Standard’s key requirements and provides insights into their application.
For more information about the impact of IFRS 17, please contact Simon Perry.