IFRS 17 is a global accounting standard that changed how insurance companies report their financial health, effective from January 1, 2023. It requires insurers to measure insurance contracts based on updated, realistic future cash flows rather than historical costs, ensuring profit is recognized as services are delivered over time.
The aim of IFRS 17 is to make reporting of risk transfer contracts more comparable between different entities. The Government Actuary's Department (GAD) was involved in the development of the IFRS 17 application guidance for accounts within scope of the government financial reporting manual (FReM).
IFRS, or International Financial Reporting Standards, are a set of accounting rules for how information should be gathered and presented in financial reports.
Summary of Key Changes between IFRS 17 vs IFRS 4
Key changes include mandatory CSM-based profit recognition, enhanced disclosure requirements, and current value measurement approaches. These changes improve comparability but demand significant implementation investments.
What does IFRS 17 involve? Deferral of new business profits in line with the service provided. Under the default model, a contractual service margin (CSM) is created on the balance sheet which is effectively a stock of future profit.
The definition of a reinsurance contract under IFRS 17 is an insurance contract issued by one entity (the reinsurer) to compensate another entity for claims arising from one or more insurance contracts issued by that other entity (underlying contracts).
The "Big Four" reinsurers, often referred to as Europe's largest, are Munich Re, Swiss Re, Hannover Re, and SCOR, known for their global reach, diversified portfolios, and strong performance in underwriting and investment income, especially in property/casualty markets, despite ongoing challenges and evolving reporting standards.
From 2023, the new insurance standard, IFRS 17 Insurance Contracts, will apply for all companies. This is because it applies to contracts, regardless of the issuer, and therefore all companies could be affected, not just insurers.
The four pillars of IFRS S1 and S2 are governance, strategy, risk management and metrics and targets.
What are the Principles of Insurance? The principles of insurance include seven key concepts: insurable interest, utmost good faith, proximate cause, indemnity, subrogation, contribution, and loss minimisation.
The difficulty of Dip IFRS depends on your accounting background, study habits, and access to the right support. It's a professional challenge—but not an impossible one.
Although IFRS consists of a wide range of standards but its key four primary principles we will summarize below.
The Securities Exchange Committee (SEC) requires the use of US GAAP by domestic companies with listed securities and does not permit them to use IFRS; US GAAP is also used by some companies in Japan and the rest of the world.
Although Japan and the US are not required to follow the IFRS standards, there is interest from many insurers in those countries to align their standards with IFRS 17.
What are the main types of risk in insurance that brokers need to assess? Brokers primarily evaluate three core categories: personal risks (health, disability, job loss), property risks (natural disasters, theft, equipment failure), and liability risks (professional malpractice, product liability, general liability).
Is IFSR17 mandatory or voluntary? IFRS17 is now mandatory for insurance companies operating within jurisdictions, like the UK, where the standard is now law. Those companies will need to comply with the standards through their financial reporting practices.
IFRS 17 requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts. This requirement will provide transparent reporting about a company's financial position and risk.
Disclosure checklists
Our disclosure checklist outlines the minimum disclosures required by IAS 34 'Interim financial reporting' and other IFRS Acocunting Standards published by the International Accounting Standards Board (IASB). It is intended for the use of existing preparers of IFRS financial statement.
The Ps refer to People, Planet, and Profit, also often referred to as the triple bottom line. Sustainability has the role of protecting and maximising the benefit of the 3Ps.
The effective date of IFRS 17, which will be replacing IFRS 4, is now 1 January 2023; the fixed expiry date for the temporary exemption in IFRS 4 from applying IFRS 9 has been deferred to 1 January 2023.
5 Criteria for Revenue Recognition
While there are no standard reinsurance contracts, treaty and facultative contracts are the two basic types used and adapted to meet individual insurers' requirements. Both facultative and treaty contracts may be written on a proportional or an excess of loss basis, or a combination of both.
Reinsurers: The companies (or Lloyd's syndicates) assuming risk from cedents, pricing and underwriting reinsurance contracts, and paying claims. They form the core of the industry (e.g. Munich Re, Swiss Re, etc.) and derive income from premiums and investments.