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IFRS 17 Accounting Standard for Insurance Contracts: Overview, Changes & Issues

Accounting standards are fundamental to the insurance industry. These standards are designed to provide a framework that ensures consistency, transparency and comparability in financial reporting.

They dictate how insurance companies recognise, measure, present and disclose their financial information – all of which is important for stakeholders such as investors, regulators and policyholders.  Consistent accounting standards help in maintaining market confidence and stability, ensuring that stakeholders can make informed decisions based on reliable and comparable data.

Having a robust set of accounting standards like IFRS 17 (International Financial Reporting Standards)  is particularly important due to the complex nature of insurance operations, which involves managing potentially long-term liabilities and a diverse range of risks.  IFRS 17 requires insurers to measure the insurance contract liabilities using current values, providing an accurate and transparent picture of their financial position.

This article will explain what the IFRS 17 Accounting Standard is, the principles underpinning it and how they are relevant to the modern insurance industry.

What is the IFRS 17 Accounting Standard?

The IFRS 17 Accounting Standard is a comprehensive framework issued by the International Accounting Standards Board (IASB) for the recognition, measurement, presentation and disclosure of insurance contracts.

Effective from January 1, 2023, it replaced the previous IFRS 4 standard, and aims to bring greater transparency and comparability to the financial statements of insurance companies globally.

At its very essence, IFRS 17 requires insurers to measure their insurance contract liabilities based on current estimates of future cash flows, adjusted for the time value of money and for non-financial risk. Insurers recognize profit over time as they provide insurance services to policyholders, and not up front when they issue an insurance contract.

The rationale is that this provides an accurate reflection of the financial position and performance of insurers.

What are the principles of IFRS 17?

IFRS is a standard designed to offer stakeholders a clearer view of an insurer’s financial position, performance and risk exposure. Below are the core principles that underpin IFRS 17:

Identifying insurance contracts

An entity must identify contracts where it takes on significant insurance risk from the policyholder. These are agreements where the insurer agrees to compensate the policyholder if a specified uncertain future event adversely affects them.

This step ensures that only true insurance contracts are accounted for under IFRS 17, as opposed to other types of financial arrangements.

Separating components

Insurers must separate specified embedded derivatives, distinct investment components, and distinct performance obligations from the insurance contracts. Separating these components ensures that only insurance-specific risks and obligations are accounted for under IFRS 17.

Grouping contracts

Contracts must be divided into groups for recognition and measurement. These groups are typically based on portfolios of contracts that are subject to similar risks and managed together.

Contracts within each portfolio are further divided into groups that are:

  • Onerous at initial recognition (i.e., contracts where premiums are expected to be insufficient to discharge claims and attributable expenses, based on the IFRS 17 requirements which also reflect the time value of money and an adjustment for non-financial risk),
  • Not onerous but with a significant possibility of becoming onerous, or
  • Remaining contracts (that are not onerous).

This grouping helps in managing and recognising the profitability and risk of different sets of contracts more accurately.

Recognising and measuring

Insurers recognise and measure groups of insurance contracts at the risk-adjusted present value of future cash flows, known as fulfillment cash flows. This valuation incorporates all available information about future cash flows in a way consistent with observable market information.

Insurers also recognise an amount representing the unearned profit of the group of contracts, termed the contractual service margin (CSM). The CSM ensures that the profit from the insurance contracts is recognised over the period the services are provided and as the insurer is released from risk.

Recognising profit and loss

Profit from a group of insurance contracts is recognised over the period during which the insurer provides insurance services and as it is released from risk. If at any point a group of contracts is expected to become loss-making, the insurer must recognise the entire loss immediately.

This immediate recognition of losses ensures that the financial statements reflect the true economic situation of the insurer without delay.


IFRS 17 requires insurers to present insurance revenue, insurance service expenses and insurance finance income or expenses separately in the financial statements.

This presentation provides a clear view of the revenue generated from insurance services and the costs associated with providing these services. It enhances the transparency of the insurer’s performance.


Insurers must disclose information that enables users of financial statements to assess the impact of insurance contracts on the entity’s financial position, financial performance, and cash flows.

These disclosures include qualitative and quantitative information about significant judgments made in applying the standard, risks arising from insurance contracts, and the effect of those risks on the financial statements.

This comprehensive disclosure requirement ensures stakeholders have a clear and detailed understanding of the insurer’s operations and risk profile.

P&C insurance industry post-IFRS 17 implementation

The introduction of IFRS 17 created a lot of work for insurance entities. Implementing it was a large undertaking in the entire insurance finance, accounting and actuarial sector that required a significant financial and time investment.

However, with the first year of IFRS 17 reporting now behind us, we are able to see the practical benefits it has provided:

  • Increased transparency and industry-wide comparability in financial reporting
  • Improved interaction with the insurance regulator (oversight and assessment)
  • Enhanced note disclosures in financial statements
  • Enhanced identification and reporting of product risk and performance

These benefits will allow insurance companies and their stakeholders to gather information and analyse trends more effectively.

Looking for assistance in navigating IFRS 17?

IFRS 17 has fundamentally transformed the landscape of insurance accounting by introducing a uniform and comprehensive framework for recognizing, measuring and presenting insurance contracts.

Ultimately, this is a standard that has enhanced transparency, comparability and consistency in financial reporting. It has empowered  stakeholders to make better-informed decisions and, as a result, insurers have had to adapt their financial systems, actuarial models, and reporting processes to comply with the stringent requirements of IFRS 17.

For managers and owners of insurance companies, ensuring compliance with IFRS 17 is crucial for maintaining regulatory standing and optimizing financial performance.

If you need expert assistance to navigate these complex changes and ensure your company meets all IFRS 17 requirements, reach out to the team at Axxima for comprehensive support and guidance.