US insurers' journey implementing IFRS 17

The International Financial Reporting Standard 17 (IFRS 17) for Insurance Contracts represents a significant shift in the accounting landscape for insurance companies. Developed by the International Accounting Standards Board (IASB) and implemented in January 2023, IFRS 17 aims to enhance transparency, comparability and understanding of insurers' financial statements.

IFRS 17 introduces a comprehensive framework that significantly alters the way insurance contracts are recognized, measured, and reported. The new standard replaces the outdated practices of multiple accounting models, which often led to inconsistency and limited comparability among insurers.

In this article, we assess and review the implementation of IFRS 17 by US insurers, some of whom may need to report in up to three accounting standards: US Generally Accepted Accounting Principles (US GAAP), US Statutory Accounting Principles (US SAP) standards and IFRS 17.

US insurers may need to report under IFRS 17 to provide consolidation packages to their head offices when they’re located in a country that mandates the use of IFRS standards. But US insurers may also face IFRS 17 when it’s mandated for local/regulatory reporting, which is the case in Canada, South Korea or Singapore, for instance; so being a US insurer and having a legal entity or branch in those countries automatically triggers the need to implement IFRS 17.   

Challenges of adopting IFRS 17 and the impact on processes and data management

The journey to adopt the IFRS 17 standard by US insurers already reporting on US SAP and US GAAP isn’t an easy one. In the case of IFRS 17, adopting a new accounting standard not only means filing a new set of reports. Implementing the standard also has profound impacts on the organization’s processes and systems.

One significant change introduced by IFRS 17 is the requirement for a more granular level of contract aggregation, contrasting with US SAP and US GAAP practices. Contracts under IFRS 17 need to be separated based on their profitability level, demanding an even greater degree of data granularity.

The differentiation of so-called “onerous contracts” (i.e., contracts assessed as unprofitable and “likely to become onerous contracts”) from profitable contracts is crucial and will likely lead to differences in profit and loss recognition.

This granularity requirement had a significant impact on companies’ data management system, and on the processes associated with it. It required an extensive review of historical data, creation of new types of data extracts, and implementation of processes adapted to the profitability analyses and IFRS 17 transition. Consequently, these new requirements significantly impact data extraction, management, storage and new controls performed around those activities.

Furthermore, when implementing new IFRS 17-related data management tools, US insurers must pay close attention to data or systems, so the implementation doesn’t alter the existing data sets used for local reporting, whether US SAP or US GAAP. This risk is critical, in order to keep the data from being affected by IFRS 17 implementation.

US insurers with parent companies in Europe or other IFRS 17-applying geographies are required to report packages for consolidating purposes at parent level. Depending on how project governance is structured, some methodological choices and assumptions can be taken at a group level. It’s important that local management nevertheless ensures this approach still properly reflects the complexities of US insurance contracts.

Considering IFRS 17 as a potential foundation for making strategic decisions at group level, US insurers will need to provide explanations for business decisions in the context of their impact on IFRS 17 figures. US insurers should significantly emphasize being properly trained on IFRS 17, not just to understand the changes but also to be prepared to challenge, when needed, decisions that may be made in the headquarters — specifically in cases when business decisions made at the group level could have unforeseen capital or regulatory impact on the US company.

Impacts of financial performance and future profit recognition pattern can differ greatly

IFRS 17 introduces a new framework for recognizing and measuring insurance contract revenue and expenses, focusing on the fulfillment of performance obligations over the contract term, with the creation of a new concept: the contractual service margin (CSM). The timing and pattern of profit recognition differ from traditional accounting practices, requiring a careful analysis of contractual terms, cash flows, and the impact of risk and uncertainty.

IFRS 17 requires insurers to recognize the profit arising from insurance services, rather than premium recognition. The standard also mandates insurers to provide information about profits expected in the future — an additional disclosure requirement differing from US SAP or US GAAP.

Although US insurers aren’t mandated to publicly disclose any statements under IFRS 17, to justify potential discrepancies between the standards some companies might want to release additional comparative information between US reporting standards and IFRS 17 for internal reporting purposes. As stated previously, some decisions (especially on the grouping of contracts based on onerousness and profitability) may be made at group level and might not be fully tailored to US specificities.

For US insurers, if profit recognition and profitability become too different between IFRS 17 and US reporting standards, their reporting to the group (in IFRS 17) can lead to a risk of greater scrutiny, especially if profitability isn’t as high as expected.

By addressing these considerations and working toward explaining and justifying the discrepancies between US GAAP/US SAP and IFRS 17, US insurers will not only promote consistency and maintain transparency in their statements; they’ll improve comparability between revenue recognition. That will facilitate a more accurate evaluation of an insurer's financial position and performance across different jurisdictions and regulatory environments.

It also will help ensure consistency between the regulatory and IFRS frameworks. Having to justify the differences between the standards, insurers’ understanding of IFRS 17 will consequently increase.

Additionally, we’ve noticed that publishing financial statements under IFRS 17 can be seen as a real business decision for some companies; it also allows them to have a more comparable approach to competitors.

Key areas where IFRS 17 and long-duration targeted improvement create synergies

Insurance companies that are specifically required to report under US GAAP also might want to consider the potential for synergies between the implementation of IFRS 17 and adoption of the long-duration targeted improvement (LDTI) standard.

The LDTI standard was issued in August 2018 by the Financial Accounting Standards Board. Similar to IFRS 17, the aim of the LDTI standard is to improve transparency and simplify financial reporting for long-term duration contracts. The standard was to be applied in January 2023 for SEC entities; for non-SEC entities, it will be January 2025.  

LDTI will impact insurance companies that have to report under US GAAP and that issue long-duration contracts (e.g., term life, universal life, limited payments contracts).

LDTI introduces several key changes to previous accounting practices: the rate used to discount future cash flows is standardized, the amortization of deferred acquisition costs is simplified, as well as accounting practices for certain market-based options. Just as in IFRS 17, the disclosure requirements for LDTI are enhanced compared to the previous practice. For LDTI, these disclosure requirements mainly include the obligation to provide disaggregated roll-forwards for the liability of future policy benefits, policyholder account liabilities, market-risk benefits and deferred acquisition costs.

The projects initiated to comply with IFRS 17 can serve as a foundation for implementing LDTI in various crucial areas (e.g., process design, modeling systems/technologies, data management and reporting solutions). This strategic approach allows companies to leverage the existing infrastructure, methodologies and expertise developed during the IFRS 17 implementation journey.

For process design, insurers have identified commonalities in the requirements of both standards. By aligning and integrating the necessary processes (e.g., data collection, contract classification and cash flow modeling), companies can achieve synergies and reduce duplication of efforts. This streamlined approach improves efficiency and minimizes costs associated with the implementation of multiple accounting standards. This can also enhance solvency assessment and quantitative risk management frameworks.

Furthermore, the reporting solutions developed for IFRS 17 can be extended to encompass the requirements of LDTI, when also applicable. As much as possible, insurers can try to leverage the established reporting frameworks and templates, and ensure consistency and comparability in financial reporting, while reducing the burden of separate reporting processes for each standard. Not only does this approach improve transparency and facilitate accurate communication of financial information; for US insurers, it will ease the implementation of the LDTI standard (by trying to leverage previous work performed for IFRS 17 implementation) and reduce overall reporting costs.

An opportunity to create and track new KPIs

IFRS 17 introduces numerous changes in balance sheet and income statement presentation. As described previously, the standard introduces new concepts for profit and revenue recognition; key among them is the introduction of the contractual service margin (CSM). With these changes, insurers in the US might want to use this opportunity to find new ways to measure performance. With the new metrics introduced by IFRS 17, insurers can leverage the opportunity to complete their existing performance indicators developed under US SAP and US GAAP.

New KPIs, such as CSM for new business and other CSM measures, will emerge to align with the measurement principles of IFRS 17, while existing KPIs will continue to be relevant. As a result, the quantity of metrics that analysts at headquarters need to comprehend will increase. Developing new IFRS 17 KPIs is an opportunity to better depict the performance and financial situation of US insurers to headquarters.

To reduce analysts’ confusion when reading different sets of KPIs from different accounting standards, US insurers can provide a meaningful reconciliation between KPIs; it could also be considered internally as a way to enhance management performance and control.

Mazars' insight

At first glance, IFRS 17 may appear complex to implement; it can be considered an additional constraint, bringing limited added value to the US insurance accounting landscape.

During its implementation, US insurers had to pay particular attention to implications of the standard on accounting and actuarial processes. They also had to try to reconcile or align, as much as possible, the revenue recognition in the different sets of reports published, in order to depict as accurately as possible their financial performance to headquarters.

However, IFRS 17 can also become a new source of opportunity for insurers. By increasing the transparency and readability of reporting, and enabling the creation of new KPIs, IFRS 17 can allow better monitoring of insurance performance. In addition, insurers can seize the moment, during the implementation of the standard, to unify processes and systems within their companies and create synergies with other accounting or regulatory standards.

What’s next?

The transition to IFRS 17 is happening this year; public insurers have already issued their quarterly financial statements under IFRS 17. Soon, it will be time to step back from implementing the standard and reflect on what can be improved for the future publication of financial statements.

Insurers can further push the automation of tools that weren’t automated during the implementation of the standard and continue to optimize their closing process. They certainly also want to work on better anticipating and understanding volatility in their financial statements by performing sensitivity analysis (sensitivity to discount rates, payment patterns, etc …). And finally, insurers should now focus on properly documenting the processes and controls surrounding IFRS17 reporting.

Of course, education on the standard and its impacts will still be very much needed by accounting and actuarial teams, boards and audit committees.

Our team of dedicated specialists at Mazars can provide insurers with a comprehensive understanding of the standard’s implications, providing technical business expertise, data analysis, modeling, project management and change management. 

Mazars has built specific expertise in IFRS 17; monitors regulatory changes and implications; participates in all key working groups (EFRAG/IASB/local corporations); and publishes technical studies, benchmarks and impact analysis. In our multidisciplinary engagements with insurance companies, we’ve worked with actuarial and accounting teams, operational and IT departments, and conducted financial audits in the IFRS 17 environment.


Florie Bourrel-Heleine, Partner

Matthias Liermann, Director

Abdoulaye Traore, Manager

Juliette Le Goff, Senior

The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.

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