Don’t Panic over IFRS 17!

Are you one of the millions of insurance organizations worldwide getting ready for the new IFRS 17 mandate on Insurance contracts? Welcome to the club!

After years of discussions and consultations, the IASB has finally made up its mind to enhance (actually replace) its “liberal” IFRS 4 predecessor with much more stringent requirements.

IFRS 17 strives to increase reporting transparency and to provide a more comprehensive financial framework – goals similar to those for IFRS 9 (financial instruments) and IFRS 15 (revenue recognition). In addition, the new standard aims to dispense a well-orchestrated approach for the evaluation of insurance contracts with some unique nuances.

Let me tackle the most relevant here:


On the balance sheet, IFRS 17 requires all contracts must be reported at initial recognition and subsequent measurements as the total of:

  • Fulfillment cash flows, which represent the expected cash flows in terms of estimated collections from premiums and payments of claims (or any additional estimated cash flows), are properly discounted at current rates to get to a present value representation of future cash flows. Expected cash flows are further “corrected” by a risk adjustment to account for any uncertainties related to timing and other non-financial risks.
  • Contractual service margin (CSM) represents the unearned profit from the contract being recognized over the coverage period of the contract.

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In terms of profit and loss, IFRS 17 offers the following new guidelines:

  • Insurance contract revenue is not to be confused as the revenue from premiums as they are received but rather as the profits from insurance services being delivered (essentially the release of the CSM on the balance sheet).
  • Insurance finance income or expenses must incorporate the effect of the time value of money as well as the effect of financial risks.


As mentioned before, these new requirements pose numerous challenges to insurers globally and must be addressed through a well thought-out strategy combined with a robust technology solution. Below is a chart documenting the most common challenges insurance companies face in meeting IFRS 17 and how CCH Tagetik addresses each:

 

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The new IFRS 17 requirements challenge Finance with providing more transparency and forward planning with collection and preparation of granular data from many disparate sources, applying new calculations, and reporting and disclosure of final results.

 

Are you still evaluating IFRS 17 solutions?  Check out the recently published e-book and a two-minute demo.


There’s no reason to lose sleep over IFRS 17. We’ve got you covered at CCH Tagetik!

IFRS 17

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