IFRS 17 Insurance Contracts Contents – FAQ | IFRS

IFRS 17 Insurance contracts Contents

IFRS 17 Insurance Contracts Contents provides the explanations on all aspects of IFRS 17 in this website.

IFRS 17 Insurance Contracts establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts issued. It also requires similar principles to be applied to reinsurance contracts held and investment contracts with discretionary participation features issued. The objective is to ensure that entities provide relevant information in a way that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that contracts within the scope of IFRS 17 have on the financial position, financial performance and cash flows of an entity.

The IASB issued IFRS 17, a comprehensive new accounting standard for insurance contracts in May 2017. IFRS 17 will become effective for annual reporting periods beginning on or after 1 January 2021, with early application permitted.

IFRS 17 supersedes IFRS 4 Insurance Contracts


IFRS 17 applies to issued insurance and reinsurance contracts, reinsurance contracts held and investment contracts with a discretionary participation feature that are issued by an entity that also issues insurance contracts. Contracts may be grouped for accounting purposes.

Issuers of insurance contracts should report them in the statement of financial position at the total of:

  1. the fulfilment cash flows, being current estimates of amounts that the entity expects to collect from premiums and pay out for claims, benefits and expenses, adjusted for the timing and risk of those amounts, and
  2. the contractual service margin, being the expected profit for providing insurance cover.

Better reflecting economic reality, improving comparability

The existing Standard, IFRS 4 (which was actually introduced as an interim standard), allows insurers to account differently for insurance contracts they issue, even if those contracts are similar. Further, many insurers’ financial statements lack regular updates of the value of insurance obligations to reflect the effect of changes in the economic environment, such as changes in interest rates and risks.

IFRS 17 addresses many inadequacies in the existing wide range of insurance accounting practices. It requires all insurers to reflect the effect of economic changes in their financial statements in a timely and transparent way. It will also provide improved information about the current and future profitability of insurers.

Executive summary

IFRS 17 sets out the requirements that a company should apply in reporting information about insurance contracts it issues and reinsurance contracts it holds.

Requirements of IFRS 17

IFRS 17 requires a company that issues insurance contracts to report them on the balance sheet as the total of:

  1. the fulfilment cash flows—the current estimates of amounts that the company expects to collect from premiums and pay out for claims, benefits and expenses, including an adjustment for the timing and risk of those amounts; and
  2. the contractual service margin—the expected profit for providing insurance coverage.

The expected profit for providing insurance coverage is recognised in profit or loss over time as the insurance coverage is provided. IFRS 17 requires the company to distinguish between groups of contracts expected to be profit making and groups of contracts expected to be loss making.

Any expected losses arising from loss-making, or onerous, contracts are accounted for in profit or loss as soon as the company determines that losses are expected.

IFRS 17 requires the company to update the fulfilment cash flows at each reporting date, using current estimates of the amount, timing and uncertainty of cash flows and of discount rates.

The company:

  1. accounts for changes to estimates of future cash flows from one reporting date to another either as an amount in profit or loss or as an adjustment to the expected profit for providing insurance coverage, depending on the type of change and the reason for it; and
  2. chooses where to present the effects of some changes in discount rates—either in profit or loss or in other comprehensive income.

IFRS 17 also requires disclosures to enable users of financial statements to understand the amounts recognised in the company’s balance sheet and statement of comprehensive income, and to assess the risks the company faces from issuing insurance contracts.

IFRS 17 in summary

  • Information about the value of insurance obligations
    • Companies will measure insurance contracts at current value. Using updated assumptions about cash flows, discount rate and risk at each reporting date will better reflect the way a company expects to settle its insurance contract liabilities as well as reflecting the current value of interest rate guarantees. It will also make visible any economic mismatch between the current value of assets and liabilities.
    • Companies will report estimated future payments to settle incurred claims on a discounted basis. Because the time value of money will be reflected in the measurement of insurance contracts, the reported expense for claims will better reflect the economic expense.
    • Companies will use a discount rate that reflects the characteristics of the insurance cash flows to measure their insurance contracts. Companies’ financial statements will reflect risks from insurance obligations that are not economically matched by assets of equivalent risk and duration
  • Information about profitability
    • Companies will provide information about different components of current and future profitability arising from insurance contracts. Companies will recognise revenue as they deliver insurance coverage.
    • Companies and users of financial statements will need to use fewer non-GAAP measures. Information about expected insurance contract profits will be provided in a comparable manner by all companies.
  • Comparability among companies across jurisdictions
    • Companies will apply a consistent accounting framework for all insurance contracts. Many insurance accounting differences will be removed, enabling investors and analysts to properly identify economic and risk similarities and differences between companies issuing insurance contracts.
  • Comparability among insurance contracts
    • A multinational company will measure insurance contracts consistently within the group, increasing the comparability of its results by product and geographical area. This finally brings the full benefits of IFRS financial statements comparability to companies that issue insurance contracts.
  • Comparability among industries
    • Revenue will reflect the insurance coverage provided, excluding deposit components, like any other industry, increasing comparability and understanding of profit or loss of companies issuing insurance contracts. This will enable cross-industry comparability and facilitate understanding for non-specialist investors.

The IFRS 17 model combines a current balance sheet measurement of insurance contracts with recognition of profit over the period that services are provided. Here are the links to each topic of interest.

Introduction 
Insurance contracts 
Service or insurance contract?
SEPARATION AND COMBINATIONIFRS 17 Insurance contracts Contents

Combination of insurance contracts 
Separation from an insurance contract 
Separation of insurance contracts 
Separation of insurances into components 
Voluntary separation of non-insurance components

RECOGNITION

Timing of initial recognition of insurance contracts

MEASUREMENTIFRS 17 Insurance contracts Contents

Measurement of insurance contracts
Insurances classification and measurement
Current estimates
Reasonable and supportable information available
Portfolio of insurance contracts
Replicating portfolios
Insurance modelling 


General model IFRS 17 Insurance contracts
Estimates of future cash flows
Practical ability
Contract boundary
Cash flows within contract boundary
Market and non-market variables cash flow estimationIFRS 17 Insurance contracts Contents
Contractual service margin
Discount rates and observable market prices
Discount rates and characteristics of cash flows
Insurance contract discount rates
Risk adjustment for non-financial risks
Insurances risk adjustment for non-financial risks
Insurance contract liabilities 


Key differences between GM and VFA Insurance
Accounting policies for financial instruments
Onerous contracts 


Premium allocation approach
Eligibility for the premium allocation approach
Measurement of remaining coverage 


Acquisition of insurance contracts
Reinsurance contracts held
Measurement of contracts with participation features
Market consistent measurement of options and guarantees

MODIFICATION AND DERECOGNITION

Contract modification and derecognition

PRESENTATION FINANCIAL POSITION

Main FS statements Insurance contracts
Presentation insurance contracts

RECOGNITION AND PRESENTATION PERFORMANCE

Main FS statements Insurance contracts
Presentation insurance contracts

DISCLOSURE

Explanation of recognised amounts
Disclosure recognised insurance amounts
Fair value disclosures
Disclosure about insurance risks
Disclosure for insurance contracts 

Disclosure of significant judgments for insurances
Nature and extend of risks arising from insurance contracts

Sensitivity analysis to market risk
Management of credit risk for financial instruments

TRANSITIONSIFRS 17 Insurance contracts Contents

Practical implications of IFRS 17 transition choices

Transition to IFRS 17 Insurance contracts

See also: The IFRS Foundation

IFRS 17 Insurance contracts Contents

IFRS 17 Insurance contracts Contents IFRS 17 Insurance contracts Contents IFRS 17 Insurance contracts Contents 

IFRS 17 Insurance contracts Contents IFRS 17 Insurance contracts Contents IFRS 17 Insurance contracts Contents