Insurance contract accounting – A new world

Insurance contract accounting – A new world

New proposals under IFRS could have far-reaching impacts for insurance companies.



KPMG AG Wirtschaftsprüfungsgesellschaft


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KPMG IFRS Insurance topic image: crowd crossing a street carrying open umbrellas

Insurers need to prepare for the possible impacts on their IFRS financial statements and their wider business.

The IASB’s exposure draft on insurance contracts marks a major step towards implementing a common insurance reporting framework across much of the world.

The debate has run for more than 15 years and the conclusion of the insurance project is now in sight.

Our suite of publications can help you to understand the new requirements and the possible impacts for your business – from high-level summary to detailed analysis.

All insurance contracts affected

The new proposals apply to all insurance contracts, including certain financial guarantees, rather than insurance entities, and to investment contracts with a discretionary participation feature (DPF) issued by insurance companies.


“This would be the biggest ever financial reporting change for most insurers – far surpassing the adoption of IFRS. The extent of change would be far-reaching, and there is no question that insurers’ financial statements would look very different compared to today.”


Revised measurement model

The ED introduces a revised current value measurement model, with significant changes in key areas that have been at the heart of the debate since the initial proposals were released in 2010.

The latest proposals would go some of the way towards addressing concerns that the changes to insurance and financial instruments accounting would create volatility in profit or loss.

One way that the proposals aim to achieve this is by stripping out from the income statement any changes in discount rates on the valuation of an insurer’s liabilities and changes in fair value for some of its financial assets under the completed version of IFRS 9 Financial Instruments.

To this end, the effects of changes in discount rates on insurance liabilities would be recognised in other comprehensive income (OCI), rather than profit or loss.

There continues to be a simplified (or ‘premium-allocation’) measurement approach, which would be expected to reduce the operational complexity of applying the measurement model to short-duration contracts. 

New presentation approach

The ED also introduces a new presentation approach for both the statement of profit or loss and OCI and the statement of financial position, which would significantly change the way insurers – especially life insurers – report performance.

Insurance contract revenue would be allocated over the coverage period in proportion to the value of the services provided in each period, which would be very different to the premium figures presented today.

Other major changes

The proposals contain several other major changes, including:

  • an unlocked contractual service margin, which would change the timing of profit recognition;
  • a mirroring approach, which would better align the measurement of participating contracts with their underlying items; and
  • a retrospective approach for the transition to the new standard.

Broad business impacts

The proposals would be likely to have a profound impact across an organisation, affecting asset-liability management and decisions over product design, features and pricing.

Capital management and regulatory requirements may also be affected in some jurisdictions. And the new data collection and retention requirements could necessitate systems upgrades, increased demand for resources and additional training.

Divergence from the FASB

The IASB developed the proposals in the ED jointly with the FASB. However, in February 2014 the FASB changed the future direction of its insurance contracts project, choosing to focus on targeted improvements to existing US GAAP requirements.

For information on the FASB’s project, see KPMG’s Issues & Trends in Insurance.

Deliberations continue into 2015

With the IASB’s comment period having closed on 25 October 2013, redeliberations are ongoing. The IASB’s new standard is now expected in 2016. 

We will continue to report on the latest developments in the IASB’s insurance contracts project. Visit our IFRS – Insurance hot topics page.

Where can you learn more?

Read our In the Headlines for a high-level summary of the proposals and their possible impacts for your business. 

Our New on the Horizon provides our detailed analysis, pooling the insights and experience of our insurance teams globally to guide you through the proposals.

© 2017 KPMG IFRG Limited is a UK company, limited by guarantee. All rights reserved. KPMG IFRG Limited, registered in England No 5253019. Registered office: 15 Canada Square, London, E14 5GL, UK.

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