IFRS 17: A simplified approach?

IFRS 17: A simplified approach?

IFRS 17, the proposed new accounting standard for insurance contracts, is expected to be issued later this year. We outline our thoughts on the key challenges it presents non-life insurers.

nathan patten

Partner, Advisory

KPMG in the UK


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We expect the International Accounting Standards Board (IASB) to issue International Financial Reporting Standard (IFRS) 17, the proposed new accounting standard for insurance contracts, in a few months time. If this happens, the new standard is likely to take effect from 2021.

IFRS 17 will include a simplified approach to the measurement of liabilities for remaining coverage (the premium allocation approach, ‘the PAA’). The PAA may be applied to groups of contracts if:

  • The coverage period is one year or less; or
  • The PAA is expected to provide a measurement of the liability for remaining coverage which is not materially different to that produced by the IFRS 17 general measurement model.

The PAA is intended to be simpler to apply than the standard’s general measurement model and may appear similar to current accounting in some jurisdictions.

However, while it might initially seem little will change, a look below the surface reveals some challenges for insurers expecting to apply the PAA to most contracts. 

Time to think ahead? Road to IFRS 17 implementation

As insurers emerge from their year-end reporting, they are starting to think seriously about IFRS 17 to understand better the road to implementation that lies ahead.

For many, the first step is getting to grips with the eligibility criteria for the PAA, understanding any work required to demonstrate eligibility and getting an early view of any business to which the PAA won’t be applied.

Even where insurers apply the PAA, they will still face challenges. In most cases IFRS 17 will require them to account for losses on insurance business at a more granular level - accounting for incurred claims will be more complex and transparent.

In this briefing paper, we present our latest thinking on the key challenges the general insurance industry faces in implementing IFRS 17. 

We focus on nine key areas that could have the biggest impact on finance systems, processes and operations:

  1. Eligibility for the PAA
  2. Increased granularity of accounting
  3. Packaged products and contracts with different rights and obligations
  4. Acquisition costs
  5. Claims reserving: alignment with Solvency II?
  6. IFRS 17 OCI option and IFRS 9
  7. Presentation and disclosure
  8. Accounting for a Contractual Service Margin (CSM) on acquired claims liabilities; and
  9. Increased governance driving accelerated processes

Update 18 May 2017:

Following the release of the IFRS 17 insurance accounting standard, we will provide an updated article. 

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