IFRS 17 (Insurance Contracts) focuses on the recognition and measurement of insurance liabilities, fundamentally changing how insurers calculate profit. IFRS 18 (Presentation and Disclosure) dictates how that performance is structured in the financial statements—requiring specific sub-totals, such as operating profit, for all entities.
While IFRS 17—Insurance Contracts—defines measurement and specific categories within the financial statements for insurance companies reporting, IFRS 18 prescribes an overall structure to the income statement, including a new subtotal of “operating profit.” Insurance companies will need to disclose management-defined ...
IFRS 18 builds on the foundation of IFRS 17 but shifts focus to presentation and disclosure. It introduces five new categories in the income statement, mandates subtotals such as operating profit, and defines a new class of metrics called Management-Defined Performance Measures (MPMs).
IFRS 18 sets out overall requirements for the presentation and disclosure in financial statements. The IASB did not reconsider all aspects of IAS 1 when developing IFRS 18, but instead focused on the statement of profit or loss.
IFRS 18 and the consequential amendments to other IFRS accounting standards, which must be adopted at the same time, are effective for periods beginning on or after 1 January 2027 and apply fully retrospectively.
Summary. IFRS 18 replaces IAS 1 Presentation of Financial Statements as the primary source of requirements in IFRS accounting standards for financial statement presentation which will provide better information to users.
IFRS 17 is applicable for NHS bodies from 2025/26. It provides accounting guidance for entities who are issuers of insurance contracts. The new standard is applied retrospectively from 1 April 2024, restating comparatives as though IFRS 17 had always applied.
IFRS 18 requires entities to classify income and expenses into five categories, three of which are new – i.e. operating, investing and financing – and the income tax and discontinued operation categories.
IFRS 18 sets out general presentation and disclosure requirements that apply across the primary financial statements and the notes. IFRS 18 does not change how entities recognise and measure items in the financial statements. The IASB developed these requirements in its Primary Financial Statements project.
Key changes introduced by IFRS 18
Items are aggregated based on shared characteristics and judgment is required. Totals, subtotals and line items should be described and labelled in a way that faithfully represents the characteristics.
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.
In this instance, revenue is recognized when all four of the traditional revenue recognition criteria are met: (1) the price can be determined, (2) collection is probable, (3) there is persuasive evidence of an arrangement, and (4) delivery has occurred.
IFRS 17 provides consistent principles for all aspects of accounting for insurance contracts. It removes existing inconsistencies and enables investors, analysts and others to meaningfully compare companies, contracts and industries.
Insurance Risk Classifications
While IFRS 17—Insurance Contracts—defines measurement and specific categories within the financial statements for insurance companies reporting, IFRS 18 prescribes an overall structure to the income statement, including a new subtotal of “operating profit.” Insurance companies will need to disclose management-defined ...
IFRS 18 also introduces two new defined subtotals: operating profit or loss and profit before financing and income taxes. They provide clearer insights into an entity's core business performance by distinctly separating them from investing and financing activities.
IFRS 18 mandates that companies classify and present operating expenses by nature and/ or function directly on the face of the income statement, with additional disclosures (by nature) for those items presented by function on the face of the income statement.
The main four limitations of financial accounting are use of estimates and cost basis, accounting methods and unusual data, lacking data, and diversification. Companies have to use estimates when exact values cannot be obtained.
The IFRS 18 standard is effective for annual reporting periods beginning on or after 1 January 2027, with retrospective application required. For entities with a calendar year-end, this means the 2026 financial year will serve as the comparative period.
The four core financial statements are the Balance Sheet (snapshot of assets, liabilities, equity), the Income Statement (revenues, expenses, profit over time), the Cash Flow Statement (cash inflows/outflows over time), and the Statement of Shareholders' Equity (changes in owner investment over time), all crucial for understanding a company's financial health.
IFRS will require expenses to be classified into categories such as operating, investing, and financing while US GAAP will not impose such classifications. Both require disclosure of natural expenses in the footnotes (if not on the face of the financial statements).
In April 2024, the International Accounting Standards Board (IASB) issued the new accounting standard, IFRS 18 'Presentation and Disclosure in Financial Statements'. This will replace the existing IAS 1 'Presentation of Financial Statements' standard that has been in use for many years.
IFRS 18 replaces IAS 1 and becomes effective for annual reporting periods beginning on or after 1 January 2027, subject to endorsement by the EU, with earlier application permitted.
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).
Risk adjustment is one of the primary calculations in IFRS 17 disclosures. The standard requires the risk adjustment to reflect the compensation an entity requires for bearing the uncertainty associated with non-financial risks. Risk adjustment is one of the three blocks in IFRS 17 matrices.