New Insurance contracts accounting standard IFRS 17 will be effective from 1st January 2023. This will make a significant change in current accounting practice used by insurance companies. Specially, Key performance indicators (KPIs) used earlier will not be clearly visible from financial statements under IFRS 17.

Revenue and expenses are recognizing currently based on accrual model to measure profit for the reporting period. The base for these measurements will be shifted to discounted expected future cash flows under IFRS 17. Insurance companies need to understand the plausible changes in key performance indicators and need to revisit existing KPIs to align them under new IFRS 17 reporting. Further, new KPIs are essential to identify and develop.

Gross premium

Gross premium written (GPW) will lose the pride to be the top line in financial statements. GPW will be replaced with “Insurance contracts revenue” under IFRS 17. However, “Insurance contract revenue” will give an approximate figure to GPW for short term General insurance companies. There will be a significant impact in top line with Companies who are issuing long term insurance contracts.


Profitability is a key measure of performance for all industries and it is same for Insurance industry too. Insurance companies are optimizing the profit and the same time prioritizing meeting solvency requirements as per the local regulator. Profit will not be recognized soon the contract issued under IFRS 17, expected profit (CSM) will be deferred. CSM may be spread over different financial years more than the current practice. Losses on contracts (Onerous contracts) will be recognized up front than recognizing over the period. Profitability under current practice (IFRS 4) and IFRS 17 will be changed drastically. (Specially for long term insurers)

Currently profitability is measured based on financial year which may include contracts issued current year and prior years. IFRS 17 requires to group based on issue date (Issue year) of the contracts, this will give an opportunity to measure the profitability for a respective annual cohort. Required data for analyzing the profitability by issue year will be provided by IFRS 17 by default.

Loss ratio

Loss ratio (net) will be measured as net claims incurred for the respective period dividing by net premiums earned. Claims incurred and earned premiums are currently presented in the face of financial statements, but these will not be appeared in income statement under IFRS 17. “Insurance service expense” and “Insurance service revenue” will be presented in the income statement in IFRS 17, these will not be same as incurred claims and earned premiums respectively. Various adjustments and assumptions will be used to derive insurance service expense and insurance service revenue with the impact of discounted cash flows.

New method of measuring loss ratio is required to be considered after the transition to IFRS 17, However comparability of ratios with historical periods will be a challenge.

Executive remuneration Vs KPIs

Gross premium written and profit are widely considered when compensating executives and top management. Gross premium and profit will not be reported in similar way once IFRS 17 is implemented.

The insurers may track required data for existing KPIs separately or indirectly using financial statements under IFRS 17. The importance is identifying how these will really work within IFRS 17 reporting requirements to add value as a KPI.

Teran Prasanna ACA (ICAEW-UK), FCA, CPA, Bsc (Accounting)