IFRS 17: 5 Questions every insurer should be asking

March 14, 2018

For a comprehensive discussion on IFRS17, watch our on demand webinar.

IFRS 17, Insurance Contracts, was published in May 2017 after more than two decades of research and outreach by the International Accounting Standards Board. The standard is the most significant change to financial reporting for insurance companies in Canada in decades, not only in the measurement of insurance assets and liabilities, but also in how insurance contracts are presented in financial statements.

The new standard, which replaces IFRS 4, becomes effective January 1, 2021. However, the transitional provisions require restatement of comparative figures as well as the presentation of an “opening balance sheet” as of the first day of the comparative period.

These requirements significantly narrow the window of time that insurers have available to them to plan for the new standard, which will have wide-reaching implications on systems and processes to gather necessary information, as well as how financial statements users are informed about the meaning of changes to financial position and performance that will result.


IFRS 17 is a highly complex standard. This publication focuses on preparing organizations for the substantial changes that will be necessary in order to comply. Insurers should look to this time of change as an opportunity to improve systems, processes and the way the underlying business operates.

Like any transformational change, IFRS 17 brings both risks and opportunities. To address these challenges in the most effective manner, insurers should not be quick to attack the issues with brute force. This increases the risk that the insurer may expend resources without having determined what the fundamental issues facing the organization are.

Segmenting the approach into smaller projects in the proper order ensures that insurers make informed choices at every step of the transition process and keeps project management from being overwhelmed by a mountain of issues to be resolved without an approach to resolution.

Below is an illustration of this “phased” approach:


Below are the top 5 questions every insurer should be asking itself in preparing for the conversion to IFRS 17.

#1: What’s the impact?

Before designing the change management processes for the conversion to IFRS 17, insurers must first obtain a fundamental understanding of the core changes that IFRS 17 will create.

Only then can a tailored implementation strategy be designed with the objective of satisfying the requirements of the new standards.

The precise areas of impact will differ from insurer to insurer; however, a few broad areas to consider include:

  1. Will the insurer adopt the premium allocation approach for any of its contracts? If only certain groups of contracts, which groups? If applying this approach, will the insurer capitalize insurance acquisition cash flows (e.g., commissions)?
  2. How will contracts be grouped for purposes of identifying onerous contracts, for which losses must be recognized at the inception of the contract?
  3. How will the discount rate be determined (i.e., bottom up or top down) and at what level of aggregation will it be applied?
  4. On what basis will the contractual service margin be “unwound” to the income statement? Will a different methodology be applied for different types of contracts?
  5. What will be the impact of IFRS 9 on how the insurer manages its investments, and will the option to present the effects of changes in discount rates on claims liabilities in other comprehensive income be taken?

Answers to these questions, even if on a preliminary basis, have to be determined before scoping out the personnel and system needs required to address the changes that IFRS 17 is bringing.

#2: What do we need versus what do we want?

Many insurers have accounting and insurance contract management systems that have not undergone a significant refresh in many years. The underlying accounting for insurance contracts has been relatively stable in Canada for a number of years, so insurers have been able to make scalable adjustments to their systems as time has passed. IFRS 17 creates an opportunity to rethink the way an insurer uses IT from the ground up.

This question is a philosophical one for many insurers: do we merely wish to comply with the standard, or do we want to rework our business processes and integrate these IFRS 17 changes into that process? Reworking of existing systems opens opportunities in budgeting, financial planning, contract management and every other aspect of an insurer’s business.

Insurers should keep in mind that IFRS 17 isn’t simply a change in the underlying measurement principles for insurance contracts—it brings with it a fundamental reshaping of the primary financial statements. For a demonstration, see this comparison of the statement of comprehensive income under the current IFRS 4 and after the adoption of IFRS 17:


The shift in financial reporting means that insurers ought to consider what other financial reporting and planning needs exist in their organizations, as IFRS 17 creates an opportunity to meet them during this period of significant change.

#3: How do we fill the “gap” in our systems, processes, and data?

Insurers must decide whether the requirements of IFRS 17 will be “bolted on” to their existing systems, or if other financial reporting and planning needs can be satisfied by exploring other options. As many of the implications of the new standard are repetitive and highly computational, they are best met by having appropriate financial systems addressing them.

In many cases, technology can be leveraged to partially or fully automate data-related processes, including the following high-level activities.

  • Data collection and manipulation or transformation (i.e., obtaining data from source systems and getting it into a usable state)
  • Data modelling (i.e., making changes to the data to comply with the selected IFRS accounting policy)
  • Data presentation or reporting (i.e., full suite of financial statements including comparatives and information for disclosures, as well as the ability to do analysis on the detailed data models used above)


There are numerous factors to consider when designing a right-sized implementation for each insurance organization to comply with the accounting policy choices selected, including:

  • the number of source systems required to model the IFRS adjustments (e.g., policy system, general ledger system)
  • the volume of data from these systems
  • the level of actuarial input and review to the models and assumptions
  • the number of source or destination systems that need to be updated for financial and operational reporting

In some cases, an organization may elect to manually perform all data-related processes using spreadsheets. This approach leverages existing technology and is likely a good choice for a very small organization with simple needs. However, there are several risks related to the use of spreadsheets for these types of processes, and as the complexity and size of the organization increases, this manual approach becomes less desirable. In these larger and more complex cases, a combination of the following technologies can be used to partially or fully automate the data-related processes:

  • data management
  • analytical modelling
  • corporate performance management

IT infrastructure is one of the biggest investments that any insurer can make, and it drives every aspect of their business, from signing new business to evaluating its profitability throughout the term and providing performance measurement information to management.

For some insurers, IFRS 17 may be seen as an exercise in compliance, and the necessary requirements could be worked into existing systems and process. However, this transforms IFRS 17 into simply a cost rather than an opportunity to improve an organization’s performance measurement, planning and budgeting.

#4: What choices do we need to make in the short term?

The proverbial clock is ticking for insurers to begin articulating their approach to IFRS 17. No matter what approach is decided on and what the scale may be, investors, boards, management and regulators will begin expecting transition plans for insurers in the near term if they have not done so already.

Insurers should first consider the most fundamental questions about the project management aspects of the transition, such as budgets, departmental project leads, and whether decisions made by parent insurers in the group affect or limit the decisions that can be made at a local level—for example, whether the premium allocation will be an option or would it require adjustment on consolidation.

#5: Who do we need to get there?

IFRS 17 is a journey that may be starting now, but it will continue on for many years to come. It is unlikely that the transition process will be a straight line; false starts and rethinking of previously decided issues are inevitable to some extent. What is crucial now is for insurers to evaluate what tools they have available to them and what they will need to reach their goals.

Given its transformational change, insurers should ensure cross-departmental input is obtained on the impact of IFRS 17, including finance, treasury, risk management, information technology and actuarial services. Despite the fact that IFRS 17 is an accounting standard, no finance department can work through the change is isolation.

To communicate a coherent plan to key stakeholders, management will have to determine the budget for IFRS 17 from both a financial and human resources perspective. It is unlikely that the conversion to IFRS 17 can be efficiently completed as a “side of the desk” project. Management should consider acquiring temporary consulting assistance to bridge the gap during the transitional period. This will allow staff to leverage their expertise where they can utilize it best.

There’s no time like the present

The earlier an insurer begins the transition to IFRS 17, the more prepared its members may become. IFRS 17 requires a philosophical change in every aspect of an insurer’s business—from what it means to earn insurance revenue to what the key drivers of financial performance are. IFRS 17 offers forward-thinking organizations a rare opportunity to rethink their operations from the ground up. Management and boards of directors should view the IFRS 17 transition plan as integral to the short-, medium- and long-term success of their organization.

For more information on the transition to IFRS 17 or other issues facing your business, please contact your local BDO office or the IFRS 17 team:

Daryl Senick, Partner

Marc Priestley, Practice Leader, Accounting Advisory Services

For additional IFRS publications, please visit our IFRS Knowledge Centre.

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