IFRS 17: Bridging the Gap

Existing accounting practices in the insurance industry are inconsistent and unclear. This has led to the issuance of IFRS 17 Insurance Contracts – the first international Standard for insurance contracts. Because this Standard is based solely on principle and does not provide explicit guidance, insurers will need to identify their own best practices of IFRS 17 for their financial reporting. This blog post discusses some of the gaps insurers will face when implementing the new Standard.

Knowledge Gap

The biggest hurdle in implementing IFRS 17 is understanding the Standard itself. Such a knowledge gap would affect project planning and execution, as IFRS 17 involves business decisions specific to the insurers’ products and reporting procedures. For example, is the insurer currently able to generate IFRS 17 future cash flows, or do they require an actuarial system to project them? Is the insurer’s general ledger (GL) system capable of processing new IFRS 17 accounting events, or do they need to expand on their existing system? Thus, insurers should be familiar with the Standard to recognize which tools work best for their business and choose a solution that fits their needs.

Data Gap

Because IFRS 17 stresses the transparency of cash flows, insurers need to ensure that they have all the data required to measure their insurance contract liabilities. For instance, IFRS 17 measurements involve historical, current, and future cash flows – but are all these cash flows readily available for calculations? In addition, insurers will need to separate their contracts into insurance and non-insurance components, such as embedded derivatives and distinct investment components, since they fall under the scope of another Standard (IFRS 9). It is crucial to determine how much data transformation will be necessary for the implementation of IFRS 17, and how to address information that is not yet accessible.

Systems Gap

Once the data gaps are identified, insurers will need to recognize how these requirements will impact their current systems. For example, will new applications be necessary to support the implementation of the Standard? Will insurers be required to expand their source systems considering the level of granularity and volume of data needed for IFRS 17? What is the best way to introduce IFRS 17 GL accounts to the insurers’ existing accounting system? How should insurers validate their implementation results? These are some factors to consider when planning to meet the IFRS 17 requirements.

Process Gap

If new systems need to be established, then insurers will likely also need to re-configure their financial reporting process. Because IFRS 17 requires information from multiple business departments (e.g., actuarial, IT, and finance), insurers need to recognize the level of commitment required to implement the Standard from an organizational perspective. They must define the roles and responsibilities expected of each department to drive any process change. These departments must communicate with each other and collaborate appropriately to maintain an efficient workflow. One approach insurers can take is to develop and implement a standard operating procedure for the entire IFRS 17 reporting process, which would communicate details of the process in a central guiding document.


In conclusion, insurers need to examine their existing gaps in knowledge, data, systems, and processes to implement the IFRS 17 Standard. With plenty of components to review, insurers should begin gap assessments as early as possible and begin reaching out to industry experts to accelerate this process.


Carmen Loh is a Risk Consultant with FRG. She graduated with her Actuarial Science degree in 2016 from Heriot-Watt University before joining FRG in the following fall. She is currently the subject matter expert on an IFRS 17 implementation project for a general insurance company in the APAC region.



The 5Ws and H of IFRS 17 (Part 1)

The 5Ws and H of IFRS 17 (Part 2)

The 5 Ws and H of IFRS 17 (Part 2)

Previously, we talked about the 5 Ws of IFRS 17. This blog post (Part 2) will discuss the H: How does IFRS 17 replace IFRS 4?

A Consistent Model

Figure 1: The components that make up IFRS 17 insurance contract liabilities.[1]

IFRS 17 introduces the General Measurement Model (GMM) to calculate insurance contract liabilities for all insurance and reinsurance contracts. It is made up of three components:

  1. Present Value of Future Cash Flows (PVFCF)
    1. Expected future cash flow – The current estimates of cash inflows and cash outflows e.g., premiums, claims, expenses, acquisition costs, etc.
    2. Discount Rates – Current market discount rates, which are used to normalize the present value of expected future cash flows.
  2. Risk Adjustment (RA) – The compensation a company requires for bearing insurance risk. Insurance risk is a type of non-financial risk and may consist of the uncertainty of cash flows, the timing of cash flows, or both.
  3. Contractual Service Margin (CSM) – The equal and opposite amount to the net cash inflow of the two previous components. This ensures there is no day-one profit recognized in Profit or Loss (P&L) for all contracts.


More Transparent Information

Figure 2: How IFRS 17 recognizes profit in P&L.[2]

IFRS 17 only allows insurers to recognize profit once insurance services are provided. This means that insurers can no longer recognize the premiums they receive as profit in P&L. Rather, at the end of each reporting period, insurers will report the portion of the CSM remaining as Insurance Revenue after they fulfil obligations such as paying claims for insured events.

Insurance Service Expenses reflect the costs incurred when fulfilling these obligations for a reporting period. This consists of incurred claims and expenses, acquisition costs, and any gains or losses from holding reinsurance contracts. The net amount of Insurance Revenue and Insurance Service Expenses make up the Insurance Service Result. This approach differentiates the two drivers of profit for the insurer: Insurance Revenue and Investment Income. Investment Income represents the return on underlying assets of investment-linked contracts, and Insurance Finance Expenses reflects the unwinding and changes in discount rates used to calculate PVFCF and CSM.

Better Comparability

Figure 3: A comparison of IFRS 4 and IFRS 17.[3]

Regarding presentation of financial statements, IFRS 17 requires more granularity in the balance sheet than IFRS 4 (Figure 3), specifically on the breakdown of insurance contract liabilities: PVFCF, RA, and CSM. This allows for improved analysis of the insurer’s products and their business performance.

On the statement of comprehensive income, IFRS 17 has removed Premiums and replaced Change in Insurance Contract Liabilities with the new components introduced in the balance sheet – PVFCF, RA and CSM. Now, the first items listed present the insurance components that make up Insurance Service Result. This is followed by Investment Income and Insurance Finance Expenses, which together determine the Net Financial Result. With a clear distinction of the different sources of profit, this framework allows for better comparability among industries.


In summary, IFRS 17 is the accounting Standard that introduces a consistent model for measuring liabilities for all insurance contracts. It also increases the transparency of the source of insurance-related earnings by separating insurance services from investment returns, which provides global comparability for the first time in the insurance industry.

[1] Appendix B – Illustrations, IFRS 17 Effects Analysis by the IFRS Foundation (page 118).

[2] Preview of IFRS 17 Insurance Contracts, National Standard-Setters webinar by the IFRS Foundation (Slide 9).

[3] Preview of IFRS 17 Insurance Contracts, National Standard-Setters webinar by the IFRS Foundation (Slide 11).

Carmen Loh is a Risk Consultant with FRG. She graduated with her Actuarial Science degree in 2016 from Heriot-Watt University before joining FRG in the following fall. She is currently the subject matter expert on an IFRS 17 implementation project for a general insurance company in the APAC region.


The 5 Ws and H of IFRS 17 (Part 1)


The 5 Ws and H of IFRS 17 (Part 1)

International Financial Reporting Standards (IFRS) 17 Insurance Contracts, issued in 2017, represents a major overhaul on financial reporting for insurance companies. However, many in the financial industry are still unfamiliar with the Standards. This blog post, Part 1, aims to answer the five basic W questions Who, What, When, Where, and Why of IFRS 17. The H, or How, will be discussed in Part 2.

Who issued IFRS 17?

IFRS 17 is issued by the International Accounting Standards Board (IASB). The IASB specifies how companies must maintain and report their accounts.

What is IFRS 17?

IFRS 17 is the accounting Standard for insurance contracts. The IFRS are designed to bring consistency, transparency, and comparability within financial statements across various global industries, and IFRS 17 applies this approach to the insurance business.

When is the effective date?

Initially set for January 1, 2021, industry leaders have requested to delay the effective date due to the amount of effort required to implement the new Standard alongside IFRS 9. Additionally, in March 2020 the COVID-19 pandemic influenced the IASB to defer the final effective date for IFRS 17 to January 1, 2023.

Where does IFRS 17 apply?

IFRS 17 applies to all insurance companies using the IFRS Standards. Currently, it has been estimated that 450 insurance companies worldwide will be affected. Insurance companies in Japan and the United States, however, use Generally Accepted Accounting Principles (GAAP)—a rules-based approach that is rigorous compared to the principle-based approach of IFRS. Therefore, IFRS 17 does not directly impact Japan or the U.S., but it could affect related multinational companies with insurance business overseas.

Why was IFRS 17 developed?

This section discusses some of the main issues with the current reporting standards (IFRS 4) which has led to the issuance of IFRS 17. They include inconsistent accounting, little transparency, and lack of comparability (see Figure 1).

Figure 1: Some of the main issues with IFRS 4.[1]

Inconsistent Accounting

IFRS 17 was developed to replace IFRS 4, which was an interim Standard meant to limit changes to existing insurance accounting practices. As IFRS 4 did not provide detailed guidelines, there were many questions left unanswered about the expectations for insurers:

  • Are they required to discount their cash flows?
  • What discount rates should they use?
  • Do they amortize the incurred costs or expense them immediately?
  • Are they required to consider the time value of money when measuring the liabilities?

Hence, insurers came up with different practices to measure their insurance products.

Little Transparency

Analyzing financial statements has been difficult as some insurers do not provide complete information about the sources of profit recognized from insurance contracts. For example, some companies immediately recognize premiums received as revenue. There are also companies that do not separate the investment income from investment-linked contracts when measuring insurance contract liabilities. As a result, regulators cannot determine if the company is generating profit by providing insurance services or by benefiting from good investments.

Lack of Comparability

Some multinational companies consolidate their subsidiaries using different accounting policies, even for the same type of insurance contracts written in different countries. This makes it challenging for investors to compare the financial statements across different industries to evaluate investments.

How does IFRS 17 replace IFRS 4?

IFRS 17 introduces a standard model to measure insurance contract liabilities, changes the way insurers recognize profit (Insurance Revenue), and revamps the presentation of financial statements (see Figure 2). We will dive into these topics in Part 2 of this blog series.

Figure 2: A comparison of IFRS 4 and IFRS 17.[2]


[1] Appendix B – Illustrations, IFRS 17 Effects Analysis by the IFRS Foundation (page 118).

[2] Appendix B – Illustrations, IFRS 17 Effects Analysis by the IFRS Foundation (page 118).


Carmen Loh is a Risk Consultant with FRG. She graduated with her Actuarial Science degree in 2016 from Heriot-Watt University before joining FRG. She is currently the subject matter expert on an IFRS 17 implementation project for a general insurance company in the APAC region.

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