IFRS 17

IFRS 17 is an International Financial Reporting Standard that was issued by the International Accounting Standards Board in May 2017.[1][2][3] It will replace IFRS 4 on accounting for insurance contracts and has an effective date of 1 January 2023.[4] In November 2018 the International Accounting Standards Board proposed to delay the effective date by one year to 1 January 2022.[5] In March 2020, the International Accounting Standards Board decided a further deferral of the effective date to 1 January 2023.[6]

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List of insurance contracts that IFRS 17 shall be applied to：

1. Insurance and reinsurance contracts which the insurer issues
2. Reinsurance contracts it holds;
3. Investment contracts with discretionary participation features(DPF) the insurer issues, provided it also issues insurance contracts.[7]

Under the IFRS 17 model, insurance contract liabilities will be calculated as the present value of future insurance cash flows with a provision for risk.[8] The discount rate will reflect current interest rates.[9][10] If the present value of future cash flows would produce a gain at the time a contract is issued the model would also require a "contractual service margin" to offset the day 1 gain.[8] The contractual service margin would amortize over the life of the contract.[8] There would also be a new income statement presentation for insurance contracts, including a revised definition of revenue, and additional disclosure requirements.[8]

IFRS 17 will also have accommodations for certain specific types of contracts. Short-duration insurance contracts will be permitted to use a simplified unearned premium liability model until a claim is incurred.[8] And for some contracts in which the cash flows are linked to underlying items, the liability value will reflect that linkage.[8]

In South Korea there is concern that the use of current interest rates, rather than book yields, to discount the insurance liabilities will cause some insurers to show significantly higher insurance liabilities.[9][11] In other countries there are concerns about volatility of accounting results.[12]

IASB chairman Hans Hoogervorst regards the use of a current discount rate as one of the benefits of the new standard, stating that by doing otherwise "the devastating impact of the current low-interest-rate environment on long-term obligations is not nearly as visible in the insurance industry as it is in the defined benefit pension schemes of many companies."[10] He also stated that current discount rates would "increase comparability between insurance companies and between insurance and other parts of the financial industry, such as banks and asset management."[10] Other benefits Hoogervorst sees in the new standard are increased consistency across companies in accounting for insurance contracts and a more theoretically valid measurement of revenue.[10]