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### Overview and timing
- IFRS 17 Insurance Contracts published in May 2017; expected to come into force on January 1, 2023.
- IFRS 9 Financial Instruments for insurers to be implemented on January 1, 2023 (aligned implementation).
- IFRS 17 development history: more than 20 years in the making; predecessor IFRS 4 issued in 2004; comprehensive review project (IFRS 4 Phase II) spanned about 16 years.
- IASB originally set implementation date at the beginning of 2021; deferred to January 1, 2023.
- Additional implementation date notes:
  - 15 December 2022 for public business entities.
  - 15 December 2024 for other entities.
  - Annual periods beginning on or after January 2023. Early adoption permitted once IFRS 9 and IFRS 15 implemented.

### Key objectives and expected benefits
- Improve global comparability of insurer financial reporting by narrowing the wide range of practices permitted under IFRS 4.
- Expected benefits:
  - Improved liability valuation structure and balance sheet transparency for policyholders, investors, and financial stability.
  - Use of updated current cash flow assumptions and discount rates; market-consistent approach to options and guarantees.
  - Revenue recognition aligned with services provided: revenue and profit recognised over time rather than when premiums received.
  - Clearer distinction between insurance service result and net financial result; more granular profit source breakdown.
  - Greater comparability through a consistent framework for reporting insurance contracts.

### Measurement approaches under IFRS 17
- General Model (building blocks approach):
  - Liability = fulfilment cash flows + contractual service margin (CSM).
  - Fulfilment cash flows = probability-weighted future cash flows + risk adjustment for nonfinancial risk.
  - CSM removes day one gains and represents profit recognized as services are provided.
- Premium Allocation Approach (PAA):
  - Simplified approach for eligible contracts (duration of one year or less or where PAA provides similar results to General Model).
  - Similar to existing non-life valuation but requires discounting (apart from claims payment due within a year) and uses unearned premiums.
  - PAA applies to liability for remaining coverage (LRC) only; liability for incurred claims (LIC) measured using General Measurement Model (GMM); discounting for LIC not required if claims expected to be paid in one year or less from date incurred.
- Variable Fee Approach:
  - Applies to contracts with direct participation features where policyholders share profit from a clearly identified pool of underlying assets.
  - Insurer liability based on obligation to pay policyholder amount equal to value of underlying assets net of the “variable fee”.

### Interaction between IFRS 9 and IFRS 17; measurement alignment
- IFRS 9 relevance:
  - Taken together with IFRS 17 represents a major shakeup for the most significant items on an insurer’s assets and liabilities.
  - IFRS 9 expected to facilitate alignment of accounting on both sides of the balance sheet.
- Measurement alignment expectations:
  - IFRS 17 requires valuation based on current market inputs.
  - Expected many insurers will choose in IFRS 9 to move majority of assets backing insurance liabilities to fair value accounting to match IFRS 17 measurement.
- IASB amendments (June 2020) aimed to reduce implementation costs, ease transition, and make results easier to explain.
- Implementation date history:
  - original effective date: January 1, 2021.
  - IASB June 2019 Exposure Draft proposed delay to January 1, 2022.
  - final IASB decision: January 1, 2023.
  - Implementation of IFRS 9 for insurers delayed to January 1, 2023.

### Jurisdictional adoption, transposition, and scope
- Modes of introduction:
  - IFRS text directly incorporated into jurisdictional accounting standards by reference or automatic endorsement in several jurisdictions.
  - European Union implements through endorsement; permits carve-outs; amending regulation published when new standard endorsed.
- Scope and application variations:
  - In EU, listed companies must use IFRS for consolidated statements; local GAAP may be used for other entities.
  - Some jurisdictions permit but do not require IFRS reporting; some allow choice between IFRS and U.S. GAAP.
- Jurisdictional examples and status:
  - Australia and Canada: require implementation of IFRS 9 and IFRS 17 to be aligned.
  - EU jurisdictions: IFRS 17 not yet endorsed; alignment with IFRS 9 unclear.
  - Hong Kong SAR, Singapore, South Africa, South Korea: optional alignment of implementation subject to conditions.
  - Chile: IFRS 9 already implemented and not aligned with IFRS 17.
  - Japan and New Zealand: entities allowed to report under IFRS in Japan; insurers in New Zealand do not have an option to align IFRS 9 and IFRS 17 implementation.
  - United States: domestic public companies file U.S. GAAP; statutory financial statements based on U.S. Statutory Accounting Principles (NAIC). IFRS-based statements of foreign insurers filed with U.S. state supervisors as required by NAIC Holding Company Model Act.
- Very small number of jurisdictions have decided to use IFRS 17 for regulatory solvency; primary motives include avoiding conflicting financial signals and minimizing insurer costs.

### Prudential objectives, differences with accounting, and implications
- Primary aim differences:
  - Accounting standards: provide useful information to market participants (investors, creditors).
  - Prudential standards: protect policyholders’ interests (supervisors).
- Typical focus:
  - Accounting: financial performance, principles-based.
  - Prudential: regulatory solvency position, prescriptive.
- Shared aims and tensions:
  - Both facilitate comparison of financial results and provide information to supervisors, but differing requirements can be difficult to reconcile.
  - Modern risk-based capital regimes increasingly take market-consistent approaches which may reduce conservatism differences.
- Balance sheet interactions:
  - Different valuation bases can change capital resources or equity positions even with identical underlying economics.
  - Regulatory balance sheet often more conservative than accounting balance sheet, but not always.
  - Total balance sheet approach recommended: recognize interactions between valuation of assets and liabilities, capital resources and capital requirements.
- Supervisory adjustments and insolvency signal divergence:
  - Supervisors using accounting balance sheets must consider consequential changes when IFRS 17 implemented.
  - Risk exists that corporate insolvency grounds (accounting view) and regulatory intervention triggers (prudential view) may diverge.
  - Example: regulatory value of liabilities may fall more than accounting value after a market shock due to different treatment of risk premia, potentially producing conflicting insolvency signals.
- Going concern vs gone concern:
  - Supervisors may adopt gone concern (transfer value) or going concern (fulfilment/run-off) views; valuation and resolution mechanisms influenced by chosen philosophy.

### Survey findings on impact assessments and readiness
- Survey covered 20 insurance supervisors across diverse frameworks and jurisdictions.
- Very few supervisors have undertaken impact assessments on their insurers; uncertainties and potential standard revisions contribute to hesitation.
- Of those conducting impact studies:
  - Two jurisdictions expect similar valuation results under IFRS 17.
  - Two jurisdictions expect lower liability value under IFRS 17.
  - One jurisdiction expects increased liability value for certain life products with higher guaranteed investment returns than current interest rates.
- Most surveyed jurisdictions could not quantify potential financial impact; low interest rate environments may exacerbate higher liability valuations.
- Key readiness challenges:
  - IT systems and data development required.
  - Need to develop actuarial and technical expertise.
  - High implementation costs to be spread over time.
  - Acute shortage of actuarial and accounting professionals, particularly in emerging economies.

### Non-life insurers, PAA, and product impacts
- Non-life insurers generally expected to see less significant impact where short-term contracts qualify for PAA.
- PAA characteristics:
  - Removes CSM calculations and related complexities for eligible contracts.
  - Valuation results under PAA generally align with “unearned premium” approach.
  - Longer contracts may be eligible if LRC under PAA not expected to differ materially from GMM.
- For non-life insurers where discounting not currently used, requirement to discount LIC may reduce insurance contract liabilities; required risk margin in LIC could increase liabilities if higher than under IFRS 4.
- Product design and pricing effects:
  - Contracts issued more than a year apart shall not be included in same group; grouping and disclosure requirements may require product redesign and repricing.
  - Products relying on cross-subsidization between generations (participating, with-profits) may need redesign or repricing.
  - Profit recognition changes:
    - Under IFRS 4, profit could emerge on day one; under IFRS 17, profit recognized gradually via CSM; losses recognized immediately when a group is onerous.

### Supervisory roles, guidance, and recommended actions
- Supervisors encouraged to:
  - Undertake impact assessments of IFRS 17 and IFRS 9 introduction even if not planning immediate prudential use.
  - Start initial impact analysis ideally by the beginning of 2021 at the latest; initial impact analysis should start no later than the end of 2020 or beginning of 2021.
  - Engage closely with industry, encourage early insurer preparation, and guide choices within principles-based framework to achieve greater consistency.
  - Avoid jurisdictional versions of IFRS 17 implementation; promote global coordination on techniques and inputs.
- Examples of supervisory support:
  - Require pro forma financial statements.
  - Liaise with national and international accounting standard setters.
  - Monitor implementation progress via surveys.
  - Organize industry roundtables and training with professional bodies.
  - Set up dedicated national task forces to answer industry queries.
- A few jurisdictions did not consider it supervisors’ role to help address implementation challenges.

### Use of IFRS 17 in prudential frameworks and potential modifications
- Most regulatory regimes do not currently use inputs consistent with general purpose financial reporting for solvency assessment; supervisors typically prescribe more prescriptive valuation requirements.
- Reasons supervisors may not adopt IFRS 17 for solvency:
  - Concerns about comparability due to principles-based nature of IFRS 17.
  - Desire for stability (avoid annual updating of assumptions).
  - Differing objectives: IFRS 17 seen as earnings performance measure lacking some prudential features.
  - Cost concerns and materiality in jurisdictions with few IFRS-reporting insurers.
- Jurisdictions planning to review capital frameworks in response to IFRS 17: Australia, Canada, Chile, New Zealand, South Africa, South Korea.
- Possible regulatory modifications if IFRS 17 used for solvency:
  - Adjust level of aggregation, contract boundary, discount rates, risk adjustment, and treatment of CSM.
  - Examples: require bottom-up discount rate approach only; combine reinsurance with underlying contracts and value together.
- Potential changes to regulatory requirements:
  - Capital requirements for insurance risk: revise risk-based capital factors; move from factor-based to stress-based approaches; allow combining reinsurance with contracts.
  - Capital requirements for other risks: change market risk capital methodology.
  - Capital resources: adjust to minimise industry-wide capital impacts; reflect new retained earnings calculation.

### Disclosure, supervisory indicators, and reporting changes
- IFRS 17 introduces new performance and profitability measures; premiums become secondary in profit and loss.
- Supervisors may need to revise supervisory reporting and derived indicators/ratios.
- Examples of indicators enabled by IFRS 17 disclosures:
  - Insurance service expense, insurance finance income or expense, CSM for profitability and ongoing viability.
  - Return on equity, combined ratio, operating margin for capital market accessibility.
  - Present value of future cash flows for growth and market share potential.
- IFRS 17 disclosure enhancements include roll-forwards, significant inputs/judgments, reconciliations of fulfilment cash flows, risk adjustment, and CSM.

### Implementation challenges and technical issues
- Most challenging aspects for insurers:
  - IT changes: required data may be unavailable; grouping contracts by expected profitability; reconstructing historical data.
  - Costs: reconstructing history for transition requirements; June 2020 IASB amendments may provide relief depending on chosen transition options.
  - Lack of expertise: interpreting the standard, communicating to boards, short timeframes; smaller insurers face greater challenges.
- Most challenging technical aspects:
  - Level of aggregation of insurance contracts.
  - Treatment of reinsurance contracts.
  - Determination of contract boundary, discount rates, and annual cohorts.
- Expectation: industry capacity and practices will stabilize over time, reducing initial volatility in accounting results.

### Transition rules and profit recognition specifics
- Transition:
  - Measurement of liability for future policyholder benefits and deferred acquisition cost required on a modified retrospective basis with option to elect retrospective application.
  - Full retrospective application required unless impracticable; if impracticable, elect modified retrospective or fair value approach by group.
  - If reasonable and supportable information unavailable for modified retrospective, use fair value approach.
- Profit recognition:
  - Under IFRS 17, profit recognised from a group of contracts over period entity provides coverage; loss-making groups require immediate loss recognition (CSM negative at inception or subsequently).
  - Under alternative net premium model (U.S. update): profits recognized as level percentage of premiums; no profit at contract inception. Net premium model continues for traditional nonparticipating and limited-payment long-duration contracts in the U.S. update.
- Impact of assumption changes:
  - Nonfinancial assumptions updated at least annually; updates offset by adjustments to CSM so not all updates affect profit/loss immediately unless group becomes onerous.
  - Financial assumption (discount rate) updates recognized immediately in other comprehensive income; choices on presentation correspond to treatment of backing investments to minimize mismatches.

### Concluding policy points and coordination
- IFRS 17 expected to provide long-term benefits to industry transparency and financial stability but entails significant upfront costs and implementation complexity.
- Recommended next steps:
  - Conduct quantitative impact studies to understand financial and solvency impacts.
  - Begin impact analysis by end-2020 or early-2021.
  - Consider specifying aspects of IFRS 17 implementation (techniques and inputs) where wide variation exists (e.g., prescribed discount rate methodologies or published discount curves).
  - Promote global coordination and regional consultation with industry, professional bodies, investors, and consumer groups to avoid local versions of IFRS 17 and preserve comparability.
  - Jurisdictions not intending to use IFRS 17 for prudential purposes should reconsider after gaining experience with IFRS 17; solvency system reviews provide alignment opportunities.

*Source: wpiea2020146-print-pdf (IMF staff and Financial Stability Institute staff).*

### Executive Summary _________________________________________________________6

### Executive Summary

### Overview and timing
- The International Financial Reporting Standard (IFRS) 17 Insurance Contracts was published in May 2017 and is expected to come into force on January 1, 2023.
- On January 1, 2023, IFRS 9 Financial Instruments will also be implemented for insurers.
- IFRS 17 has been more than 20 years in the making; its predecessor IFRS 4 was issued in 2004 and was an interim standard. The comprehensive review project (IFRS 4 Phase II) spanned about 16 years of development.
- The IASB originally set an implementation date at the beginning of 2021; this was deferred to the beginning of 2023.

### Key objectives and expected benefits
- IFRS 17 aims to improve global comparability of insurer financial reporting by narrowing the wide range of insurance accounting practices permitted under IFRS 4.
- Expected benefits include:
  - Improved structure of liability valuation and transparency in insurer balance sheets, benefiting policyholders, investors, and financial stability.
  - Use of updated current cash flow assumptions and discount rates, and a market-consistent approach to options and guarantees to better reflect economic reality.
  - A revenue recognition approach more consistent with other industries—revenue and profit are recognised over time as insurance services are provided rather than when premiums are received.
  - Clearer distinction between an insurance service result and a net financial result, and a more granular breakdown of profit sources.
  - Greater comparability by introducing a consistent framework for reporting insurance contracts.

### Measurement approaches under IFRS 17
- IFRS 17 allows three measurement approaches:
  - The General Model (building blocks approach): insurance contracts valued as the sum of fulfilment cash flows and a contractual service margin (CSM). Fulfilment cash flows = probability-weighted future cash flows + risk adjustment for nonfinancial risk. The CSM removes day one gains and represents profit recognized as services are provided.
  - The Premium Allocation Approach (PAA): simplified approach for eligible contracts with a duration of one year or less or where PAA provides similar results to the General Model; similar to existing valuation for non-life contracts but requires discounting (apart from claims payment due within a year) and uses unearned premiums.
  - The Variable Fee Approach: applies to contracts with direct participation features where policyholders share profit from a clearly identified pool of underlying assets; insurer liability based on obligation to pay policyholder amount equal to value of underlying assets net of the “variable fee”.

### Survey findings and jurisdictional responses
- Survey covered 20 insurance supervisors across diverse regulatory frameworks and jurisdictions.
- Most of the 20 jurisdictions surveyed expect IFRS 17 will contribute to financial stability through greater transparency.
- Currently, few surveyed jurisdictions plan to use IFRS 17 for regulatory solvency purposes.
  - Main reasons: IFRS 17 is not perceived to provide sufficiently comparable financial results for regulatory use; where there are no plans to use IFRS 17, supervisors consider marginal regulatory implementation costs outweigh marginal benefits.
  - Jurisdictions that plan to adopt IFRS 17 for solvency purposes mainly seek auditing controls, avoidance of conflicting financial signals from different statements, and cost minimization for insurers.
- Jurisdictions that have not yet adopted a valuation basis for regulatory reporting may consider using IFRS generally and IFRS 17 in particular for insurance liabilities.

### Prudential implications and supervisory guidance
- IFRS provides a ready-made principles-based framework, reducing the need for supervisors to develop numerous valuation rules; however, accounting and regulatory objectives differ and overlap.
- Different policy choices have produced, and will continue to produce, a wide range of regulatory approaches in using accounting standards to assess solvency.
- Supervisors are encouraged to:
  - Undertake impact assessments of the introduction of IFRS 17 and IFRS 9 even if they do not plan immediate use of IFRS for prudential purposes.
  - Start initial impact analysis ideally by the beginning of 2021 at the latest.
  - Engage closely with industry, encourage early preparation by insurers, and potentially guide choices within the principles-based framework to achieve greater consistency.
  - Avoid jurisdictional versions of IFRS 17 implementation; greater specification of techniques and inputs should be developed through global coordination.

### Implementation challenges and industry impacts
- IFRS 17 is perceived as a complex standard requiring professional judgment and has significant implementation challenges, including an acute shortage of expertise in many jurisdictions.
- Implementation challenges for IFRS 9 are less significant than for IFRS 17.
- IFRS 17 and IFRS 9 together will result in restatement of the largest components of both sides of an insurer’s balance sheet and will shape strategic business decisions and risk management practices.
- The potential financial impact of IFRS 17 is currently unclear because most jurisdictions have not undertaken a quantitative impact study.
- Some jurisdictions plan to review their capital adequacy frameworks in response to IFRS 17, guided by principles to provide the right incentives for insurers to manage risks properly and to achieve appropriate prudential outcomes in terms of policyholder protection.

### COVID-19 context and sequencing
- The new accounting standards will not be the top priority for supervisors or insurers during the COVID-19 pandemic, but the 2023 implementation date is looming.
- Supervisors and insurers can afford only a relatively short period of diverting resources from IFRS 17 and IFRS 9 implementation to address the pandemic; resources should return to implementation work as the pandemic’s impact stabilizes.
- Supervisors that are not currently intending to implement IFRS 17 for regulatory solvency purposes should reconsider after gaining experience with IFRS 17, noting that solvency systems undergo periodic reviews that provide opportunities for alignment.

### Concluding policy points
- Aligning IFRS 17 implementation with current specifications of regulatory valuation approaches may allow a single set of financial statements usable for both general-purpose financial reporting and regulatory solvency valuation.
- Global coordination on specification of techniques and inputs is important to avoid localized versions of IFRS 17 and to preserve global comparability.

*Source: wpiea2020146-print-pdf - Executive Summary _________________________________________________________6*

### 9.      Following the publication of IFRS 17 in 2017, the IASB published limited

### wpiea2020146-print-pdf - 9.      Following the publication of IFRS 17 in 2017, the IASB published limited

### IFRS 17 amendments and implementation timeline
- IASB published limited amendments to IFRS 17 in June 2020 (IASB, 2020) intended to:
  - reduce implementation costs,
  - make the results easier to explain,
  - ease the transition.
- Amendments covered: scope exclusions; allocation of acquisition costs to expected renewals; attribution of profit to investment activities; extension of risk mitigation option; reduced accounting mismatches for reinsurance; simplified balance sheet presentation; additional transition relief.
- Implementation date moved:
  - original effective date: January 1, 2021
  - IASB June 2019 Exposure Draft proposed delay to: January 1, 2022
  - final IASB decision: January 1, 2023
- Corresponding change: implementation of IFRS 9 for insurers will be delayed to the same date (January 1, 2023).

### Interaction between IFRS 9 and IFRS 17 for insurers
- IFRS 9 relevance:
  - IFRS 9 is also relevant for insurers and, taken together with IFRS 17, represents a major shakeup of the accounting for the most significant items in an insurer’s assets and liabilities.
  - IFRS 9 is not considered to have the same level of impact as IFRS 17 for insurers but will facilitate alignment of accounting on both sides of the balance sheet of insurers.
- Measurement alignment expectations:
  - IFRS 17 provides for valuation based on current market inputs.
  - It is expected that most insurers will make choices in IFRS 9 to move the majority of their assets backing insurance liabilities to fair value accounting in order to match the measurement approach in IFRS 17.

### How IFRS is introduced into local law and scope of application
- Modes of introduction:
  - In several major jurisdictions, the IFRS text is directly incorporated into jurisdictional accounting standards either by reference or automatic endorsement into local law.
  - The European Union implements through endorsement but permits carve-outs; every time a new standard is endorsed at EU level, the European Commission publishes an amending regulation directly applicable in all EU countries (European Commission, 2002).
- Scope differences:
  - In the EU, listed companies must establish consolidated account statements using IFRS, but local GAAP may be used for other entities.
  - In some jurisdictions, IFRS forms the basis of legal accounting standards with jurisdictional modifications.
  - In some jurisdictions, reporting using IFRS is permitted but not required.
  - Some jurisdictions allow insurers to use a major accounting framework; some may use IFRS and others U.S. GAAP.

### Jurisdictional decisions and U.S. specifics
- Adoption status:
  - Several jurisdictions have not yet decided whether to adopt IFRS 17 in their national accounting standards.
  - Adoption by the EU (based on European Financial Reporting Advisory Group advice) is a major unresolved issue and is considered key to international success.
- United States:
  - Domestic public companies must file U.S. GAAP financial statements and insurers file legal entity statutory financial statements with state supervisors.
  - Legal entity statutory financial statements are based on U.S. Statutory Accounting Principles (SAP) as set by the National Association of Insurance Commissioners (NAIC, 2019).
  - The NAIC framework requires the NAIC to adopt, reject, or adopt with modification every U.S. GAAP pronouncement issued by the FASB; generally requires adoption of some form of U.S. GAAP unless compelling reason to differ.
  - IFRS-based financial statements of foreign insurers are filed with U.S. state insurance supervisors as required by the NAIC Holding Company Model Act (NAIC, 2014).

### Alignment of IFRS 9 and IFRS 17 across jurisdictions (examples)
- Australia and Canada: require implementation of IFRS 9 and 17 to be aligned.
- EU jurisdictions: IFRS 17 not yet endorsed; unclear alignment with IFRS 9. Subject to EU endorsement for a further deferral of IFRS 9, most insurers will likely apply any such optional deferral of IFRS 9 until January 1, 2023 or later.
- Hong Kong SAR, Singapore, South Africa, South Korea: optional alignment of implementation subject to conditions in the applicable accounting standard (e.g., an entity’s predominant activity must be related to issuance of insurance contracts within scope of IFRS 4). Several insurers in South Africa have already adopted IFRS 9. In Hong Kong SAR, many insurers are expected to defer IFRS 9 implementation to align with IFRS 17 adoption.
- Chile: IFRS 9 is already implemented and is not aligned with IFRS 17 implementation.
- Japan and New Zealand: entities allowed to report under IFRS in Japan and insurers in New Zealand do not have an option to align IFRS 9 and IFRS 17 implementation.

### Accounting vs prudential regulatory frameworks — objectives and differences
- Different primary aims:
  - Accounting Standards: Provision of useful information to market participants to enable informed decision-making.
  - Prudential Standards: Protecting policyholders’ interests.
- Different focus:
  - Accounting: Financial performance.
  - Prudential: Regulatory solvency position.
- Key stakeholders:
  - Accounting: Investors, creditors and other stakeholders.
  - Prudential: Policyholders and supervisors.
- Key statements:
  - Accounting: Profit and loss account; and balance sheet.
  - Prudential: Balance sheet for solvency purposes.
- Typical form of requirements:
  - Accounting: Principles-based.
  - Prudential: Prescriptive.
- Shared aims and tensions:
  - Both aim to enable comparison of financial results and provide useful information to users including insurance supervisors.
  - Significantly different accounting and prudential requirements may be difficult to reconcile.
  - Increasingly, modern risk-based capital regimes take a market consistent approach which in theory should remove conservatism differences.

### Prudential implications of accounting valuation choices
- Balance sheet interactions:
  - Different valuation bases for insurance contracts can result in different capital resources or equity positions even if underlying economics are identical.
  - Regulatory balance sheet often shown as more conservative than accounting balance sheet, but not always the case.
  - Difference between assets and liabilities determines equity/capital resources; regulatory criteria assess loss absorption capacity.
- Strategic and incentive effects:
  - Valuation methods influence strategic decisions by boards and senior management (e.g., locked-in assumption methods may favor longer-term life insurance contracts).
  - Management incentives to choose particular accounting policies within a valuation framework have disclosure and market conduct implications relevant to supervisors.
- Total balance sheet approach:
  - A coherent solvency framework should be based on a total balance sheet approach recognizing interactions between valuation of assets and liabilities, capital resources and capital requirements.
  - Insurers typically must deduct intangible assets from capital resources due to low loss-absorbing capacity in stress.
  - Valuation requirements need consistency with capital requirements (e.g., capital requirements for life insurance risks can be established by stressing assumptions used in insurance liability valuation).
  - Some valuation bases in modern capital frameworks may be less conservative than general purpose financial reporting, especially regarding profit recognition at contract inception.
  - A total balance sheet approach should be forward looking and calibrated to protect policyholders without making capital requirements prohibitively expensive.

### Supervisory adjustments and insolvency signal divergence
- Supervisory adjustments:
  - Degree to which accounting standards are used in solvency frameworks affects adjustments prudential supervisors must make to capital adequacy requirements.
  - Supervisors not using accounting standards as prudential basis need not adjust recognition of capital resources and capital requirements, but should be aware of indirect impacts where components rely on accounting results.
  - Supervisors using accounting balance sheets must consider consequential changes when IFRS 17 is implemented.
- Risk of divergent insolvency signals:
  - Different measurement bases can lead to corporate insolvency grounds being met before regulatory intervention is triggered.
  - Insurance Core Principle 17 Capital Adequacy (International Association of Insurance Supervisors, 2019) expects a ladder of intervention with minimum capital requirement (MCR) as solvency control level; breach triggers strongest supervisory intervention (examples include withdrawal of license, run-off, wind-up).
  - Example scenario: regulatory value of insurance liabilities falls more than accounting value after a market shock because some risk premia from assets are recognized in the discount rate of regulatory valuation while accounting applies a small illiquidity premium over the risk-free rate. Assuming an MCR of 100 percent, the insurer’s solvency ratio remains above the MCR but has less assets than liabilities on an accounting basis; supervisor may lack legal basis to impose strongest measures prior to corporate insolvency triggered by a creditor in an insolvency regime relying on accounting balance sheets.
- Going concern vs gone concern views:
  - Some supervisors take a ‘gone concern’ view (vs accounting ‘going concern’), affecting which assets are recognized prudentially and how liability valuation components are treated.
  - Approaches include aligning both sides of the balance sheet using fair value for assets and transfer value as proxy for fair value of liabilities (gone concern via transfer value) versus fulfilment/run-off view (going concern) allowing insurer-specific valuation parameters.
  - Resolution mechanisms may not perfectly align with valuation view but the philosophy influences valuation basis and prudential treatment.

### Potential impact on insurers and readiness
- Assessment status:
  - Most surveyed jurisdictions have not yet been able to assess potential financial impact of IFRS 17 on their insurers.
- Contributing factors:
  - Insurers’ need to further develop information technology (IT) systems and data to implement the standard.
  - Continuing development of technical expertise to undertake the valuation.
  - High implementation costs that need to be spread over time.

*Source: Excerpts from wpiea2020146-print-pdf (IMF staff and Financial Stability Institute staff).*

### 27.      Very few of the surveyed insurance supervisors have undertaken an impact

### Very few of the surveyed insurance supervisors have undertaken an impact assessment on their insurers

### Impact assessments and valuation findings
- Very few surveyed insurance supervisors have undertaken an impact assessment on their insurers; uncertainties and the possibility of further revisions to the standard could contribute to hesitation.
- Of those that conducted impact studies:
  - Two jurisdictions expect similar valuation results under IFRS 17.
  - Two jurisdictions expect lower liability value under IFRS 17.
  - One jurisdiction expects increased liability value for certain life insurance products that offer higher guaranteed investment returns than current interest rates.
- The low interest rate environment prevalent in several economies may exacerbate higher liability valuations due to lower rates used to discount future cash flows.

### Non-life insurers and the Premium Allocation Approach (PAA)
- Some supervisors expect a less significant impact on non-life insurers.
- Short-term contracts that qualify for the simplified PAA are generally expected to see little change in accounting compared with the “unearned premium” approach under IFRS 4.
- Key PAA points:
  - Valuation results under the PAA are generally in line with the “unearned premium” approach used under IFRS 4 for short-term, non-life insurance business.
  - PAA applies to the liability for remaining coverage (LRC) only; liability for incurred claims (LIC) is measured using the general measurement model (GMM), but discounting for LIC is not required if claims are expected to be paid in one year or less from the date the claims were incurred.
  - CSM calculations and related complexities are removed under the PAA.
  - Longer contracts may be eligible for the PAA if the LRC under the PAA is not expected to differ materially from the GMM result.
- For non-life insurers where discounting is not currently used, the requirement to discount in determining LIC will reduce insurance contract liabilities; a required risk margin in LIC could increase liabilities if higher than under IFRS 4.
- In markets dominated by non-life insurance, the overall impact of IFRS 17 is likely less significant than in markets dominated by life insurance.

### Channels through which IFRS 17 could affect insurers and supervisors’ concerns
- In jurisdictions that do not use accounting standards as a basis for solvency assessment, IFRS 17 could still affect insurers through several channels:
  - Conflicting financial position signals from multiple valuation bases.
  - Misaligned incentives influencing insurers’ behavior and business strategy.
  - Non-compliance leading to qualified audit statements and potential capital flight.
  - Higher costs of maintaining multiple systems and accounts, passed to policyholders via higher premiums.
  - Ill-prepared insurers becoming outliers and losing competitiveness.
  - Increased operational risks from system changes affecting both accounting and solvency preparation.

### Business strategy, profit recognition, and product design
- Managers may face conflicting objectives between prudential benchmarks and accounting-based earnings; divergence between regulatory and accounting balance sheets complicates capital allocation decisions.
- Insurers are not generally expected to change business strategy significantly during the transitional period prior to IFRS 17 implementation; insurers will likely select transitional approaches that minimize financial and operational impact.
- Some insurers may review asset-liability management and internal controls, potentially shifting toward longer-duration assets and adjusting reinsurance arrangements to minimize accounting asymmetries.
- Operational KPI changes: premiums will be secondary information in the statement of profit and loss under IFRS 17, prompting fine-tuning of performance metrics based on new measures.
- Long-term effects:
  - Short-term adverse implications on measured profitability may occur.
  - Positive impact on sustainability as economically unprofitable products that relied on upfront profit recognition are discontinued.
  - Profits must be recognized gradually as coverage is provided via the Contractual Service Margin (CSM); losses recognized upfront when a policy is onerous.
  - Under IFRS 4, profit could emerge on day one; IFRS 17 alters this pattern through CSM.

### Market conduct and policyholder outcomes
- IFRS 17 aligns insurer incentives with treating policyholders fairly by tying profit recognition to the period of coverage; it reduces the possibility of insurers recognizing upfront profits for contracts that may be terminated by policyholders.

### Solvency implications and capital considerations
- The impact of IFRS 17 on insurers’ regulatory solvency position is unclear, irrespective of whether the standard is used for prudential purposes.
- Considerations include:
  - Day-one transition impact on retained earnings, with retained earnings often a key component of capital resources.
  - Even where IFRS 17 is not used for solvency assessment, accounting metrics used in capital frameworks could still be affected.
  - Some jurisdictions may mitigate impacts by recognizing the CSM as capital resources.

### Enterprise risk management and professional capacity
- IFRS 17 is expected to strengthen ERM frameworks via stronger actuarial function and data governance controls, supporting Insurance Core Principle 8 Risk Management and Internal Controls.
- Heavy reliance on accounting, auditing, and actuarial professions is expected to facilitate consistent implementation; professional standards and guidance (e.g., International Actuarial Notes) will serve educational roles.
- Shortage of actuarial and accounting professionals, particularly in emerging economies, is a serious obstacle to successful implementation.
- Actuarial and accounting professional standards provide assurance; lack of professional engagement increases operational risk and potential inaccuracies in reported financial results.

### Implementation challenges identified by supervisors
- Most challenging aspects for insurers:
  - IT changes: required data may be unavailable or not readily available; grouping contracts by expected profitability and reconstructing historical data is demanding.
  - Costs: significant tasks to reconstruct history for transition requirements; June 2020 IASB amendments to transitional provisions may provide relief, but economic consequences depend on insurers’ chosen options and pilot studies.
  - Lack of expertise: interpreting the standard, communicating results to boards, and short timeframes to establish infrastructure; smaller insurers expected to face greater challenges.
- Most challenging technical aspects:
  - Required level of aggregation of insurance contracts.
  - Treatment of reinsurance contracts.
  - Determination of contract boundary, discount rates, and annual cohorts.
- Expectation that industry capacity and practices will stabilize over time, reducing initial volatility in accounting results.

### Supervisory roles and recommended supervisory actions
- Supervisors can address implementation challenges by encouraging early preparation and close engagement with industry; examples of supervisory support include:
  - Requiring insurers to provide pro forma financial statements.
  - Liaising with national and international accounting standard setters to monitor application and interpretation.
  - Regular monitoring of implementation progress through industry surveys.
  - Organizing industry roundtables to exchange views on common challenges.
  - Organizing training for the industry with professional actuarial or accounting bodies.
  - Setting up dedicated national task forces to answer industry queries.
- Consultation on adjustments to regulatory requirements creating implementation challenges should occur as early in the transition as possible to allow sufficient preparation time.
- A few surveyed jurisdictions did not consider it the role of supervisors to help address implementation challenges.

### Use of IFRS 17 in prudential frameworks
- Most regulatory regimes do not currently use inputs consistent with general purpose financial reporting standards to assess solvency; supervisors typically prescribe more prescriptive valuation requirements for prudential comparability.
- Despite IFRS 17’s publication, few surveyed jurisdictions plan to adopt it for regulatory solvency purposes, with reasons for maintaining existing valuation requirements including:
  - Comparability: IFRS 17’s principles-based approach could result in noncomparable valuation practices; regulatory requirements are more prescriptive to enable solvency comparisons.
  - Stability: Some regulatory frameworks avoid requiring updated valuation assumptions annually, unlike IFRS 17.
  - Differing objectives: IFRS 17 regarded by some supervisors as mainly measuring earnings performance and lacking necessary prudential features.
  - Cost: Supervisors unconvinced that benefits of transitioning regulatory valuation to IFRS 17 outweigh costs.
  - Materiality: In jurisdictions where only a small number of insurers are subject to IFRS, creating a separate regulatory solvency system may not make sense.
- At the time of publication, the IASB was consulting on a limited number of targeted amendments to IFRS 17, not expected to change fundamental aspects of the standard.

*Source: https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020146-print-pdf.pdf*

### 46.      A very small number of jurisdictions have decided to use IFRS 17 for regulatory

### A very small number of jurisdictions have decided to use IFRS 17 for regulatory

### Use of IFRS 17 for regulatory solvency and motivations
- Paragraph 46: A very small number of jurisdictions have decided to use IFRS 17 for regulatory solvency general purpose financial reporting.
- Common reasons cited:
  - avoid potentially conflicting financial signals from multiple sets of financial statements;
  - minimize cost to insurers.
- Uncertainty and potential diffusion:
  - It is currently unclear if other jurisdictions will follow suit.
  - Some supervisors plan to review their existing regulatory approaches and may consider using IFRS 17 for solvency assessment.
  - Some jurisdictions will likely consider adopting IFRS 17 if larger jurisdictions do so, especially if the regulatory frameworks are similar.
- EU context:
  - In the EU, there is currently no clear indication as to whether IFRS 17 will be adopted as an accounting standard.
  - Even if adopted, Solvency II currently specifies valuation requirements that are not based on IFRS.
- Two key considerations for jurisdictions contemplating IFRS 17 for solvency:
  - Is there a viable current solvency valuation framework distinct from current accounting standards?
  - How comprehensive is the application of IFRS to insurers in the jurisdiction?

### Modifications when using IFRS 17 for regulatory solvency
- Paragraph 47: Some jurisdictions plan to use IFRS 17 as a starting point and modify the standard for regulatory solvency purposes.
- Examples of IFRS 17 components that may need modification:
  - (i) level of aggregation of insurance contracts;
  - (ii) contract boundary;
  - (iii) discount rates;
  - (iv) risk adjustment;
  - (v) CSM.
- Specific modification examples:
  - Allowing only the bottom-up approach instead of permitting bottom-up or top-down approaches to determine discount rates (paragraph 47).
  - More significant changes may include combining reinsurance with the underlying insurance contracts and valuing them together.

### Comparisons between regulatory and accounting standards
- Paragraph 48: Exercise care when comparing regulatory and accounting standards—the level of comparison may yield different conclusions.
- High-level consistency:
  - Some supervisors view their regulatory valuation basis as consistent with IFRS 17 at a high level.
  - Most modern risk-based solvency frameworks include key components of IFRS 17 (contract boundary, current estimate, and margin over current estimate).
- Divergences:
  - The concept of contractual service margin would be less common in many regulatory frameworks.
  - Drilling down to further details may reveal more divergences.

### Jurisdictional views on comparability and planned reviews
- Paragraph 49: Surveyed jurisdictions were divided on the importance of IFRS 17 for cross-jurisdiction comparability.
- Concern:
  - The principles-based nature of IFRS 17 allows a wide range of accounting practices, possibly leading to differences in valuation results.
- Counterpoint:
  - International standards like IFRS 17 are principles-based to adapt to local markets, products, and circumstances.
- Jurisdictions planning to review capital adequacy frameworks in response to IFRS 17:
  - Australia, Canada, Chile, New Zealand, South Africa, and South Korea (paragraph 49).

### Potential changes to regulatory requirements (Table 4 summary)
- Capital Requirements for Insurance Risk:
  - Revise risk-based capital factors applied to technical provision or earned premium measures;
  - Move from factor-based to stress-based approach;
  - Allow insurance contracts to be combined with reinsurance component.
- Capital Requirements for Other Risks:
  - Change methodology to calculate market risk capital requirement.
- Capital Resources:
  - Change to minimise potential industry-wide capital impacts;
  - Make adjustments to reflect new way of calculating retained earnings.

### Supervisory guiding principles and objectives
- Paragraph 50: Most supervisors use two main guiding principles when reviewing capital adequacy frameworks relative to IFRS 17:
  - (i) provide the right incentives to insurers to manage risks properly;
  - (ii) achieve appropriate prudential outcomes in terms of policyholder protection.
- Lesser-considered factors:
  - maintaining conceptual consistency;
  - minimizing regulatory burden on insurers;
  - maintaining similar level of overall industry capitalization.
- Additional considerations noted by one surveyed jurisdiction:
  - adherence to the Insurance Core Principles;
  - maintaining equivalence with other solvency regimes.

### Regulatory and supervisory implications for financial stability and policyholders
- Paragraph 51: Most surveyed jurisdictions expect IFRS 17 will contribute positively to financial stability; some have not established a view; several smaller jurisdictions expect no positive or negative impact.
- How IFRS 17 may contribute positively to financial stability (in order of consensus):
  - (i) allows investors to judge the performance of an insurer more easily;
  - (ii) provides better information on profitability trends and immediate recognition of losses of an insurer;
  - (iii) provides proper and regularly updated measurement of insurance liabilities including the cost of options and guarantees;
  - (iv) ends upfront profit taking and revenue recognition;
  - (v) provides comparable financial information of insurers reporting on IFRS basis within and across jurisdictions.
- Paragraph 52: Mixed supervisor views on impact on policyholders—ranging from no material impact to higher premiums and withdrawal of certain product types.
  - IFRS 17 requires insurers to separately identify portfolios managed together and group contracts by expected profitability.
  - Contracts issued more than a year apart should not be included in the same group—this may require significant changes to product design and pricing.
  - Products relying on cross-subsidization between generations (e.g., participating or with-profits contracts) may need redesign or repricing.

### Supervisory reporting, indicators, and disclosure
- Paragraph 53: Supervisors may need to revise supervisory reporting requirements and the financial indicators/ratios derived from those reports due to IFRS 17.
  - IFRS 17 introduces new performance and profitability measures and will no longer provide explicit information on premium income prevalent in existing indicators.
  - Supervisors are reviewing which new indicators to introduce or existing ones to revise; examples referenced (APRA 2019).
  - Some jurisdictions expect changes to requirements on own risk and solvency assessment, stress testing, and supervisory risk rating frameworks.
- Paragraph 54: IFRS 17 disclosure is expected to provide new information useful for supervisory monitoring.
  - Examples of new or modified indicators (Table 5):
    - Profitability and ongoing viability of business: Insurance service expense, insurance finance income or expense, CSM.
    - Accessibility to capital markets: Return on equity, combined ratio, operating margin.
    - Growth and market share potential: Present value of future cash flows.

### Proportionate application and simplifications
- Paragraph 55: A small number of surveyed supervisors plan to allow a proportionate application of IFRS 17 for certain insurers to alleviate complexities.
  - The PAA under IFRS 17 is cited as a possible simplification because it removes discounting of future cash flows and CSM calculation complexity.
  - Although PAA is allowed only for certain short-term contracts under IFRS 17, some supervisors may widen scope for smaller insurers with less risky business models and simpler products.

### Concluding remarks and recommended actions
- Paragraphs 56–63: Key conclusions and recommended next steps
  - IFRS 17 expected benefits:
    - Positive benefits to the insurance industry and financial stability in the long-term, but significant implementation and upfront costs.
    - Improved transparency can aid supervisors and stakeholders to act in a timely manner.
    - Can enhance insurers’ ERM frameworks and better align financial reporting with policyholders’ interests by matching profit recognition with insurance service provision.
  - Caveats:
    - Not all supervisors share positive views; benefits may be muted due to varied application practices.
    - More work and quantitative impact studies are needed to understand potential impacts on insurers’ financials and solvency (paragraph 57).
  - Prudential implications:
    - Need full appreciation of prudential implications regardless of whether regulatory frameworks rely on IFRS 17 for solvency assessment (paragraph 58).
  - Timing and urgency:
    - New accounting standards will not be the top priority during the COVID-19 pandemic, but the 2023 implementation date is looming.
    - Initial impact analysis should start no later than the end of 2020 or beginning of 2021 (paragraph 59).
  - Diversity of regulatory approaches:
    - A wide range of regulatory approaches will likely result; supervisors should ensure the cost of a separate regulatory approach outweighs the benefits of a single valuation basis (paragraph 60).
  - Reconsideration and alignment:
    - Jurisdictions not intending to implement IFRS 17 for regulatory solvency purposes should reconsider in the medium-term after experience with IFRS 17; solvency system reviews may provide alignment opportunities (paragraph 61).
  - Specification to improve comparability:
    - One way forward is to specify aspects of IFRS 17 implementation (techniques and inputs) where a wide range exists—for example, prescribed discount rate methodologies or published discount curves (paragraph 62).
  - Global coordination:
    - Greater specification should be developed through global coordination to avoid local versions of IFRS 17; regional and global consultation with industry, professional bodies, investors, and consumer groups would be required (paragraph 63).
    - Jurisdictions with insurance groups with significant cross-border business may benefit most from a globally consistent approach.

*Source: wpiea2020146-print-pdf (IMF).*

### 1. Implementation date Fiscal years beginning after:

### 1. Implementation date Fiscal years beginning after:

### Implementation date and early adoption
- 15 December 2022 for public business entities  
- 15 December 2024 for other entities  
- Early adoption is permitted.  
- Annual periods beginning on or after January 2023. Early adoption is permitted once IFRS 9 and IFRS 15 have been implemented.

---

### Scope
- Applicable to all insurance entities that issue long duration contracts.  
- Applicable to insurance contracts issued, reinsurance contracts issued, and reinsurance contracts held whether or not by an insurance entity.  
- Covers contracts such as traditional and limited payment life, universal life and annuity, participating contracts and market risk benefits.  
- Market risk benefit defined as: "A contract or contract feature in a long-duration contract issued by an insurance entity that both protects the contract holder from other-than-nominal capital market risk and exposes the insurance entity to other-than-nominal capital market risk."  
- Investment contracts with discretionary participation features are also covered by IFRS17 if the entity also issues insurance contracts.

---

### Level of aggregation
- Under the update (U.S. GAAP comparison): when measuring liability for future policy benefits related to nonparticipating traditional and limited-payment long duration contracts, insurers may group contracts issued in the same quarter or year but may not group contracts from different issue years.  
- Under IFRS 17:
  - Grouping of individual insurance contracts affects recognition of losses for onerous groups and timing of profits from profitable groups.  
  - Profits from one group may not offset losses from another group.  
  - A portfolio comprises contracts subject to similar risks and managed together.  
  - Each portfolio subdivided into groups of:
    - (i) contracts onerous at initial recognition, if any;
    - (ii) contracts at initial recognition having no significant possibility of becoming onerous subsequently, if any; and
    - (iii) remaining contracts in the portfolio, if any.  
  - Contracts issued more than one year apart shall not be included in the same group.

---

### Measurement model
- For traditional nonparticipating and limited-payment long duration contracts, the net premium model continues to measure the liability for future policyholder benefits.  
- Net premium ratio computed as: present value of insurance contract benefits and expenses divided by the present value of gross premiums; used to compute the liability for future policy benefits.  
- Gross premiums are included in the fulfilment cash flows.

Sub-elements:
- Cash flow assumptions:
  - Under existing FASB standard, original cash flow assumptions locked at contract inception and held constant; includes a provision for risk of adverse deviation; assumptions unlocked if premium deficiency arises.  
  - Under update/IFRS 17 for nonparticipating traditional and limited-payment long duration contracts:
    - Best estimate future cash flows based on updated assumptions (reviewed at least annually in the same period each year) are to be used.  
    - Unbiased estimates of expected future cash flows arising as the entity fulfils its obligations based on current assumptions (reviewed each reporting period) are to be used.
- Discount rates:
  - For nonparticipating traditional and limited-payment long duration contracts:
    - upper-medium grade (low-credit risk) fixed-income instrument yield that maximises the use of current market observable inputs and reflects the duration characteristics of the liability.  
    - rates to be updated each reporting period.  
  - Under IFRS 17: Current market-consistent discount rates that reflect the time value of money (risk free), the characteristics of the cash flows and excluding factors not relevant to the liability (for example market and credit risk). Rates to be updated each reporting period.
- Risk margin:
  - Under existing FASB standard: No explicit risk margin.  
  - Under IFRS 17: Explicit adjustment for nonfinancial risk.
- Market risk benefits:
  - Under existing FASB standard: certain market-based options or guarantees associated with deposit (or account balance) contracts share common risk characteristics; two different measurement models exist (a fair value model and an insurance accrual model).  
  - Under IFRS 17: Market risk benefits such as variable contract guarantees are to be measured at fair value including risk margins. Embedded options and guarantees are included in the measurement of the fulfilment cash flows and valued in a way consistent with observable market prices (if any) for such options and guarantees.

---

### Profit recognition
- Net premium model: profits recognized as a level percentage of premiums over the life of the contracts.  
- For limited payment contracts: profits recognized in a constant relationship with the insurance in force for life insurance contracts or with the amount of expected future benefit payments for annuity contracts.  
- No profit is recognized at contract inception.  
- Under IFRS 17: Profit is recognised from a group of insurance contracts over the period the entity provides insurance cover and as the entity provides insurance services. If a group of contracts is or becomes loss-making, the loss must be recognised immediately.

---

### Onerous contracts
- Net premium ratio limited to 100 percent; premium deficiency testing no longer needed for nonparticipating traditional and limited-payment contracts.  
- Loss recognition testing continues to be applicable for universal life-type contracts. Under these approaches, losses are recognized immediately.  
- Under IFRS 17: If a group of contracts is loss-making (CSM of the group calculated negative at inception or subsequently), the loss must be recognized immediately.

---

### Impact of assumption changes — nonfinancial assumptions
- Net premiums as of contract inception recalculated at least annually (more frequently if warranted) based on updated future cash flow assumptions while including actual historical cash flows.  
- Revised net premiums used along with updated future cash flow assumptions to derive an updated liability for future policy benefits.  
- Insurers will recognize a portion of the effect related to prior periods as a cumulative catch-up adjustment in income and a portion of the effect of the assumption changes in future periods.  
- After initial recognition, updates to nonfinancial assumptions do not entirely affect total liability or profit and loss unless changes render the group onerous, because of an offsetting adjustment to any CSM balance forming part of the total liability.
- Unearned profits:
  - Under existing FASB: Included in the present value of the difference between the gross and net premiums.  
  - Under IFRS 17: Represented by the contractual service margin (CSM). The initial CSM is the amount needed to prevent recognition of profit at contract inception.
- Acquisition expenses:
  - Under existing FASB: Multiple amortisation methods exist; complex.  
  - Update: Acquisition expenses explicitly deferred and amortized on a constant level basis over the expected term of related contracts. Acquisition costs are those related directly to the successful acquisition of new or renewal insurance contracts.  
  - Under IFRS 17: Included in fulfilment cash flows thereby reducing the CSM and implicitly deferred. Acquisition expenses included must be directly attributable to the portfolio of contracts to which a group belongs.

---

### Impact of assumption changes — financial assumptions
- Impact of updating the discount rate assumption is to be recognized immediately in other comprehensive income.  
- Changes in the time value of money and changes in financial risk, included in insurance finance income or expenses, may be recognized in profit or loss or other comprehensive income under certain circumstances. The choice of approach generally corresponds to the treatment of backing investments to minimize accounting mismatches.

---

### Transition
- Measurement of the liability for future policyholder benefits and deferred acquisition cost required to be applied on a modified retrospective basis to contracts in force as of the beginning of the earliest period presented with the option to elect a retrospective application.  
- Measurement of market risk benefits required to be applied retrospectively.  
- Full retrospective application is required unless impracticable. If and only if full retrospective application is impracticable, either a modified retrospective approach or fair value approach may be used.  
- The choice between the modified retrospective and fair value approaches is made for each group of insurance contracts for which it is impracticable to apply the full retrospective approach.  
- If an entity cannot obtain reasonable and supportable information to apply the modified retrospective approach, it must use the fair value approach (which requires maximizing the use of information that would have been used under a full retrospective approach, but using information available without undue cost or effort). Purpose is to determine the CSM to be included in insurance contract liabilities at transition.

---

### Revenue recognition
- Under U.S. GAAP, for traditional long-duration contracts, premiums recognized as revenue over the premium-paying periods when due from policyholders. This remains unchanged by the update.  
- Accounting for deposits and premiums on insurance contracts will be in the same manner as bank deposits, i.e., as an item of cash flow and not revenue.  
- Under IFRS 17: Insurance revenue is recognized as the entity satisfies its obligation to provide insurance coverage under its contracts. Insurance revenue excludes any investment components "(the amounts that an insurance contract requires the entity to repay to a policyholder even if an insured event does not occur)" and is the consideration to which the entity expects to be entitled in exchange for insurance services.

---

### Presentation and disclosure
- Under existing FASB standard: limited requirements to disclose information about long-duration contracts.  
- Under update/IFRS 17: More granular and enhanced note disclosures, including:
  - roll-forwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs;  
  - significant inputs, judgments, assumptions, and methods used in measurement, including changes and their effects on measurement.  
- Profit or loss from underwriting activities (Insurance Service Result) will be reported separately from financing activities (Net Financial Result).  
- Extensive and granular note disclosures covering items such as:
  - detailed reconciliations of the opening and closing balances of the present value of future fulfilment cash flows, risk adjustment and contractual service margin;  
  - management’s judgments and changes in these judgments, including inputs, assumptions and estimation techniques.

---

### Appendix highlights — Differences between IFRS 17 and IFRS 4 (jurisdiction observations)
- Level of aggregation: IFRS 17 introduces significant grouping requirements; many surveyed jurisdictions currently value at individual contract level or group by risk profiles rather than profitability. Insurers likely need more segmentation under IFRS 17.  
- Premium Allocation Approach for contracts of one year or less: Some life insurers expected to use it for short-term business; most non-life insurers expected to use it for majority of short-term contracts; one surveyed jurisdiction stated none of their life insurers will use it. IFRS 17 requires specified criteria be met to use this approach.  
- Scope of application: Largely similar between IFRS 17 and IFRS 4 in most jurisdictions; some contracts currently under IFRS 4 (fixed fee service contracts, unbundled service contracts, pension contracts) may not be included under IFRS 17. In one jurisdiction more unit-linked contracts may be captured under IFRS 17.  
- Current estimates and discount rates: Differences expected in prescription of discount rates, mortality rates, treatment of discretionary benefits, implicit risk margins, timing of revenue recognition, explicit allowance for surrenders, future expense cash flows, and discounting practices across jurisdictions.  
- Risk adjustment for nonfinancial risk: Not explicit in most jurisdictions currently but hidden conservativism may produce similar outcomes.  
- Contractual service margin (CSM): New concept in most jurisdictions; could have significant impact during transition and on profit emergence patterns; hidden conservatism in some jurisdictions may lessen impact.  
- Subsequent measurement and profit recognition: IFRS 17 controls profit emergence more than current practices where gains/losses from assumption changes are often recognized immediately.  
- Contract boundary: Criteria likely to differ across jurisdictions and could significantly impact capture of future cash flows; some expected future premiums currently excluded may be captured under IFRS 17.

---

### Appendix highlights — Transposition and regulatory approaches
- Table summarizing regulatory approaches to the use of IFRS for prudential purposes (jurisdictional examples):
  - IFRS text is directly incorporated into jurisdictional law: CAN,  DEU,  KOR,  SVK,  SVN, ZAF.  
  - IFRS text directly incorporated into jurisdictional professional accounting standards: HKG, KOR, MYS, ZAF.  
  - IFRS forms the basis of legal accounting standards but modifications made for jurisdictional context: AUS, NZL, SGP.  
  - Professional actuarial standards drafted based on IFRS but not identical text: SVK.  
  - Not directly adopted; IFRS permitted but not required for some entities: JPN.
- Regulatory approaches to use of accounting standards for prudential purposes (selected entries):
  - AUS: Use of IFRS for public financial reporting = Yes. Will continue to use general purpose accounting standards for prudential reporting (with some regulatory adjustments). Required for all insurance companies.  
  - CAN: Use of IFRS for public financial reporting = Yes. Will continue to use general purpose accounting standards for prudential reporting. Required for all insurance companies.  
  - KOR: Use of IFRS for public financial reporting = No. Will change and adopt the Market Adjusted Valuation (MAV) approach, consistent with Solvency II and global insurance capital standard (ICS).  
  - NZL: Use of IFRS for public financial reporting = Yes. Not yet decided for prudential reporting; modification of some IFRS 17 items likely.  
  - USA: Use of IFRS for public financial reporting = No. Will continue to specify supervisory method; permitted but not required for foreign-owned insurance subsidiaries and branches only.  
  - Several jurisdictions (DEU, ITA, FRA, SVN, SVK) note Solvency II or other supervisory methods remain in place; treatment varies by jurisdiction.

*Source: IMF staff.*

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_Source: https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020146-print-pdf.pdf_