Understanding IFRS 17 Compliance: Overcoming the Operational Challenges 

The insurance industry has undergone and continues to undergo a major transformation with the implementation of IFRS 17, the global standard for insurance contracts accounting. While compliance is now non-negotiable, many insurers are still navigating the challenges of aligning systems, processes, and data with the new requirements. 

This blog breaks down why IFRS 17 was introduced, what’s changed, and what insurers must do to stay ahead. 

Why the Change? 

Previous insurance accounting standards lacked transparency and consistency. It was difficult to determine whether a company was truly profitable, and comparisons across organizations were unreliable. Combined investment and underwriting income blurred performance visibility while inconsistent reporting methods existed across insurers. Due to these reasons, there was little forward-looking insight into profitability or risk. To solve this, the International Accounting Standards Board (IASB) introduced IFRS 17 effective in most jurisdictions as of 2023 with the aim of standardizing and modernizing insurance reporting. 

What’s New Under IFRS 17 

The major changes: 

• Separation of underwriting and investment income for clearer financial reporting  

• Use of present value and risk-adjusted cash flow forecasts to calculate profitability  

• Standardized reporting across all types of insurance contracts  

IFRS 17 also introduced the Contractual Service Margin (CSM), a key metric that reflects the expected profit from insurance contracts, based on current assumptions and forecasts. 

This approach delivers greater comparability, insight, and transparency. 

From Old to New: A Methodology Shift 

The traditional approach calculated profits using actual premiums, claims, and investment income. IFRS 17 replaces this with expected cash flows and risk adjustments, forming the basis for the CSM. 

Contracts are categorized as onerous (loss-making) or non-onerous (profitable). Onerous contracts recognize losses immediately, while profits from non-onerous contracts are recognized over time. 

This shift promotes more conservative and reliable financial reporting. 

Operational Challenges for Insurers 

IFRS 17 introduces significant operational changes. It’s not just about new formulas—it demands better data, tighter governance, and refined processes. Key challenges for insurers include granular data requirements where insurers must collect detailed information on timing, risk, and contract groupings. Monthly recalculations and new reporting flows become necessary leading to some process overhauls. 

High-quality, traceable data is now essential for auditability. Insurers need to assess current systems and fill the gaps fast. 

Special Considerations for Reinsurance 

Reinsurance introduces unique complexities under IFRS 17 that go beyond the standard requirements for direct insurance contracts. One of the most significant changes is the need to account separately for inwards and outwards reinsurance contracts, reflecting the fundamentally different economic purposes they serve. 

Inwards reinsurance (assuming risk from another insurer) must be treated like any other insurance contract, with profit recognition tied to the CSM and adjusted for future cash flows, claims, and expenses. Outwards reinsurance (ceding risk to another insurer) is assessed based on the expected recovery and the cost of protection, and it requires a distinct CSM calculation. Importantly, profit or loss from outwards contracts is always recognized over time, even if they are onerous, providing a different treatment from inwards business. 

Under IFRS 17, contracts must be grouped not only by type and duration but also by profitability: 

For reinsurance, the classification of onerous or non-onerous contracts becomes especially important when assessing proportional treaties or facultative contracts that may not follow the profitability patterns of primary insurance. 

Reinsurance data must be sourced, classified, and processed separately, possibly also requiring enhancements to policy administration systems, to capture all relevant treaty details which are necessary to track CSM, risk adjustments, and present value calculations. Reporting workflows must also ensure that each reinsurance contract type is treated according to its specific risk and accounting profile. This meticulous segmentation enables insurers to accurately measure the financial impact of their reinsurance strategy and optimize capital and risk management decisions. 

How to Get Started 

Getting started with IFRS 17 involves two major steps. Insurers need to implement a calculation engine to handle forecasting, risk adjustment, and CSM calculations and prepare a data environment so that the system will deliver accurate, complete, and timely data, and need seamless integration with the IFRS 17 module. Collaboration between actuaries, finance teams, and IT is crucial for success. 

Turning Compliance into Capability 

IFRS 17 is more than a regulatory shift, it’s an opportunity to gain deeper, clearer insight into business performance. With the right tools, partners, and data, insurers can not only meet compliance requirements but also sharpen strategic decision-making. Now is the time to evaluate your readiness, upgrade your systems, and make IFRS 17 work to your advantage. 

Want to learn even more? Watch the webinar here.