IFRS 17 Insurance Contracts: new developments in insurance

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May 2017 saw completion of the work on the new International Financial Reporting Standard that governs accounting for insurance contracts. From 1 January 2021, IFRS 17 Insurance Contracts is to fully replace currently applicable IFRS 4 Insurance Contracts. It should be noted that the new standard has still to be approved for use in the EU, and obtaining approvals might take some time, but no significant delay in its implementation is expected.

The main aim and core principles of IFRS 17

The main objective of this standard is to adopt a uniform accounting approach in all entities entering into insurance contracts, as opposed to interpretations that are possible under IFRS 4. The new standard will apply to all insurance and reinsurance contracts, as well as investment contracts with discretionary participation features if their issuer also underwrites insurance contracts at the same time.

Below are the core principles of the new standard:

  • Insurance contracts are contracts in which one entity (insurer) takes substantial insurance risks on behalf of the other party (policyholder) and agrees to compensate the policyholder for any adverse effects of a named uncertain future event (insured event) on him;
  • Specific embedded derivatives, separable investment components and certain contractual obligations to provide services should be separated from an insurance contract. The separated components should be accounted for in accordance with the standards applicable to them.
  • Insurance contracts should be grouped according to their recognition and measurement principles. Depending on conditions laid down by the standard, such groups should be measured by one of the following methods:

- the risk-adjusted present value of future cash flows (performance cash flows) that includes all available information on cash flow performance according to information observed in the marketplace;

- an amount representing unearned profit from all contracts in one group (contract servicing margin).

  • Profit from a group of insurance contracts should be recognised during the operation of the insurance policy until it expires. If a group of insurance contracts is or will be making a loss, this should be immediately recognised in profit or loss.
  • Insurance revenues and costs associated with insurance services as well as insurance financing revenues and costs should be reported in financial statements separately.
  • Additional quantitative and qualitative disclosures should be made in financial statements, making it possible to measure the effect of insurance contracts on the financial position, financial indicators and cash flows.

IFRS 17 in fact makes accounting for insurance contracts partially similar to the revenue recognition principles laid down by IFRS 15 Revenue from Contracts with Customers. And accounting for liabilities associated with insurance contract groups is moved closer to the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. So the issuer of the new standard continues striving to make accounting for insurance contracts easier to understand and more homogenous, and to limit the number of models used in accounting as far as possible.

For more information about IFRS 17, please contact Tereze Labzova-Ceicane (tereze.labzova@pwc.com or +371 6709 4400).


Terēze Labzova-Ceicāne
Tel: +371 67094400
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