Short answer
IFRS 17 is an international standard that forces insurers to record profits and losses from contracts in a way that reflects timing and risk, giving a clearer picture of their financial health.
Key points
- Standardises insurance accounting worldwide
- Shows profits when they are earned, not when paid
- Allows choice of where to record financial risk changes
- Improves comparability across insurers
- Increases transparency for investors
IFRS 17 forces insurers to recognize the profit and loss from their contracts at the time the risk is earned, not when money changes hands. It also lets companies decide whether changes in discount rates go straight into profit or into other comprehensive income, affecting earnings volatility.
How the standard works
Under IFRS 17, each insurance contract is measured using the fulfilment cash flows, a discount rate that reflects the time value of money, and a risk adjustment. The result is a liability figure that changes each reporting period as assumptions shift.
What the choice means for earnings
Companies that route changes through profit see larger swings in earnings, while those that route them to other comprehensive income report steadier results. Both methods are acceptable; the choice is disclosed in the notes.
Frequently asked questions
Do all insurers have to adopt it?
All entities that issue insurance contracts and prepare financial statements under IFRS must adopt IFRS 17.
What is a risk adjustment?
A risk adjustment is an amount added to the liability to reflect the uncertainty about the fulfilment cash flows.
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