IFRS 9/17 – Fundamental change in reporting by insurance companies

The new IFRS 9/17, issued by the International Accounting Standards Board in May 2017 and adapted again in June 2020, came into force on 1 January 2023. In this revised version, the new international accounting standard also became European law with the European Commission’s Regulation (EU) 2021/2036 in November 2021. It replaced the interim standard IFRS 4 on accounting for insurance contracts, which had been in effect since 2005. The new standard establishes principles for the identification, recognition, measurement, and disclosure of insurance contracts and thus fundamentally changes the reporting of listed insurance companies.

New measurement methodology for insurance contracts ...

The most important innovations brought about by IFRS 9/17 concern the methodology with which contracts and policies are measured. The key question is: When does an insurance company begin generating profits, and who contributes to them? Whereas contracts were previously measured primarily on the basis of income (premiums) and expenses (insurance benefits), in future their assessment will be based on the present value of potential cash flows. These are distributed over the periods and economically allocated to them. This particularly affects life insurance contracts, which can have terms of several decades.

… and changed presentation of revenues

Investors also have to adjust with regard to the income statement. According to IFRS 9/17, gross premiums are no longer reported; they will be replaced by what is referred to as insurance revenue. This is calculated for example by excluding the savings portion contained in life insurance policies. On the whole, therefore, revenues will be lower than the previous gross premiums.

Significantly greater clarity for investors

All in all, the changes bring clear advantages: The consistent, market-oriented view eliminates the previous systematic inconsistencies between the assets and liabilities sides (previously, only an insurer’s investments were measured at market prices, whereas the claim provisions were not discounted according to their utilisation date). The appropriate presentation of revenue and recognition of insurance business separate from the investment-type contracts also provides greater clarity, and the disclosure of expected future profits from long-term business increases transparency.

For external observers, the insurance business should thus become much easier to understand than before. Of course, these new parameters and key figures, which the industry is currently developing at full speed, first need to become established among all the stakeholders. UNIQA is also currently working on the changeover – which is time consuming and costly – and will report according to the new standard from the first quarter of 2023.

Strategy and operational business unchanged

One important thing to remember in all of this: The new standard only changes the presentation and the accounting, not the operational management of our business let alone its profitability and future potential. This means that UNIQA’s Group strategy, dividend policy, capital strength, and prudent financing remain unchanged. It should actually make the profitability of our business even more transparent for our shareholders in the future.