IFRS 9/17: new reporting, same strategy

On 1 January 2023, two new international accounting standards, IFRS 17 and IFRS 9, came into effect, fundamentally changing the world of reporting for insurance companies.

The new standards aim in particular to ensure a more appropriate measurement of insurance contracts and financial instruments. This is intended to improve financial reporting and thus increase transparency for shareholders along with all other stakeholders as well. The UNIQA Group converted its reporting – after extensive preparations – at the beginning of 2023 and reported for the first time according to the new rules with the results of the first quarter 2023.

More transparency and clarity for investors

One of the main advantages of the new standards IFRS 9/17 introduced by the International Accounting Standards Board (IASB) is the increased transparency. The new standards require more detailed disclosure of the financial position and risks facing insurance companies. This enables investors to make informed decisions by giving them a clearer picture of the company’s financial situation and future cash flows. Improved transparency will strengthen confidence in financial reporting, which in turn should increase investor interest.

Better measurability through a more appropriate methodology

IFRS 17 introduces a new measurement methodology for insurance contracts that better aligns with the industry’s business model: policies are now measured based on expected cash flows, more accurately depicting financial performance. A certain amount is also deducted to compensate for non-financial risks (risk adjustment). The difference, i.e. the residual value, reflects the expected future result from the insurance portfolio – if it is positive, this will be the profit. In future, the statement of financial position will therefore better reflect economic reality than was previously the case.

This so-called “General Measurement Model” (GMM) is used to measure life insurance contracts without profit participation as well as long-term property and casualty insurance contracts. For life insurance contracts with profit participation as well as the majority of health insurance contracts, the “Variable Fee Approach” (VFA), a variation of the GMM, is applied. For short-term contracts of property and casualty insurance – here IFRS 17 has only a minor impact – the “Premium Allocation Approach” (PAA), which is fairly comparable to the previously applicable IFRS 4, is largely applied.

Modified revenue presentation for more accurate results

IFRS 17 calls for significant changes to the income statement. The most important change relates to the presentation of insurance revenue: in accordance with IFRS 17, gross premiums are no longer reported, but rather insurance revenue. To calculate this, the savings portion of life insurance policies, for example, is deducted. Furthermore, the statement of comprehensive income no longer shows each item after reinsurance. Instead, all items are shown gross and the total comprehensive income from reinsurance ceded is reported net in a separate line. In addition, in accordance with IFRS 17, the accounting interest result is presented in the financial result. These changes provide shareholders with a more realistic assessment of the company’s financial performance and enable a more informed evaluation of profitability.

Statement of financial position: structure of the liabilities side fundamentally changed

The application of IFRS 9/17 mainly leads to a restructuring of the equity and liabilities in the statement of financial position of insurance companies, which is largely based on a new presentation of the technical provisions. The newly introduced item “Liability for Remaining Coverage” (LRC) represents the company’s obligations to policyholders for the remaining term of the insurance contracts. It essentially comprises the present value of the future cash flows from these policies, any necessary risk adjustments and a contractual service margin (CSM). The “Liability for Incurred Claims” (LIC; provision for unsettled claims) completes the technical provisions. Thanks to this more differentiated breakdown, the structure of the statement of financial position is now much more representative of the specific requirements of the insurance industry. The biggest challenge was the remeasurement of the CSM for the existing business.

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.