Insurance contracts

The key principles in IFRS 17 are that an entity:

  1. identifies as insurance contracts those contracts under which the entity accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain; future event (the insured event) adversely affects the policyholder;

  2. separates specified embedded derivatives, distinct investment components and distinct performance obligations from the insurance contracts;

  3. divides the contracts into groups it will recognise and measure;

  4. recognises and measures groups of insurance contracts at a risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable market information plus (if this value is a liability) or minus (if this value is an asset) an amount representing the unearned profit in the group of contracts (the contractual service margin);

  5. recognises the profit from a group of insurance contracts over the period the entity provides insurance coverage, and as the entity is released from risk; if a group of contracts is or becomes loss-making, an entity recognises the loss immediately;

  6. presents separately insurance revenue, insurance service expenses and insurance finance income or expenses.

  7. discloses information to enable users of financial statements to assess the effect that contracts within the scope of IFRS 17 have on the financial position, financial performance and cash flows of the entity. To do this, an entity discloses qualitative and quantitative information about:

    1. the amounts recognised in its financial statements from insurance contracts;

    2. the significant judgements, and changes in those judgements, made when applying the Standard; and

    3. the nature and extent of the risks from contracts within the scope of this Standard.

Effective date

An entity shall apply IFRS 17 for annual reporting periods beginning on or after 1 January 2021. If an entity applies IFRS 17 earlier, it shall disclose that fact. Early application is permitted for entities that apply IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers on or before the date of initial application of IFRS 17.

For more information on the project please see the IFRS 17 project page on the IFRS Foundation’s website. Watch the Foundation’s debrief video and read the project summary and key terms here.