Back Matter
  • 1, International Monetary Fund
  • | 2, International Monetary Fund
  • | 3, International Monetary Fund

IX. References

Appendix I. List of Supervisors that Participated in Survey and Abbreviations

1. Australian Prudential Regulation Authority (AUS)

2. Bermuda Monetary Authority (BMA)

3. Office of the Superintendent of Financial Institutions, Canada (CAN)

4. Comisión para el Mercado Financiero, Chile (CHL)

5. Dubai Financial Services Authority (DUB)

6. French Prudential Supervision and Resolution Authority (ACPR), France (FRA)

7. Federal Financial Supervisory Authority (BaFin), Germany (DEU)

8. Insurance Authority, Hong Kong SAR(HKG)

9. Istituto per la Vigilanza sulle Assicurazioni, Italy (ITA)

10. Financial Services Agency, Japan (JPN)

11. Financial Supervisory Service and Financial Services Commission, South Korea (KOR)

12. Bank Negara Malaysia (MYS)

13. Reserve Bank of New Zealand (NZL)

14. Monetary Authority of Singapore (SGP)

15. National Bank of Slovakia (SVK)

16. Insurance Supervision Agency, Slovenia (SVN)

17. Prudential Authority, South Africa (ZAF)

18. Swiss Financial Market Supervisory Authority

19. Prudential Regulation Authority, United Kingdom

20. National Association of Insurance Commissioners, United States (USA)


After a public consultation in 2007, the FASB pursued a joint project with the IASB to review the accounting for insurance contracts. In February 2014, rather than continuing to work with the IASB on a new accounting model, the FASB instead decided to focus its efforts on making targeted improvements to its U.S. GAAP insurance accounting model. On August 15, 2018, the FASB issued an Accounting Standards Update, ASU 2018–12, intended to address shortcomings in financial reporting for insurance companies that issue certain long duration contracts. Three of the main shortcomings of FASB’s current accounting model are:

  • The current use of locked-in assumptions about nonparticipating traditional and limited-payment long duration contracts;

  • Nonmarket-based approaches to valuation of market-based benefits of long duration contracts that expose the insurer to capital market risk; and

  • Under the existing FASB standard, there are limited requirements to disclose information about long duration contracts.

The 2018 update from the FASB addresses these shortcomings. It does so by incorporating updated current cash flow assumptions and discount rates in measuring insurance liabilities for certain long duration contracts; a market-based approach to determining the value of options and guarantees; and more extensive note disclosures. Insurers’ financial statements prepared under IFRS 17 and those under the updated requirements of ASU 2018–12 are expected to better reflect economic reality and more faithfully represent the true underlying financial position and performance of insurance contracts. The Table 1 compares key features of the U.S. GAAP targeted improvements for long duration contracts with the requirements of IFRS 17.

Table 6.

Comparison of Key Features of the U.S. GAAP Targeted Improvements for Long Duration Contracts with the Requirements of IFRS 17

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Source: IMF staff.

Appendix III. Differences Between IFRS 17 and IFRS 4

Following are key differences that the surveyed jurisdictions expect between the current accounting standard for insurance contacts, IFRS 4 compared to IFRS 17.

Level of Aggregation

This is one of the most significant changes between the two standards. This is because currently, in most of the surveyed jurisdictions, there is no such requirement and the valuation is mostly undertaken at the individual contract level. In some jurisdictions, current accounting standards require insurers to group policies based on their risk profiles rather than profitability as required under IFRS 17. It is expected that insurers will need to segment their insurance contracts into more categories than currently.

Use of Premium Allocation Approach for Contracts of One-Year or Less

Some life insurers are expected to use the premium allocation approach for their short-term business, but it is not expected to result in significantly different valuation than the current approach. The main difference is that, under IFRS 17, insurers need to fulfil the specified criteria before they can use this approach to value eligible insurance contracts. Only one of the surveyed jurisdictions stated that none of their life insurers will use the premium allocation approach. Most of the surveyed jurisdictions expect non-lifenon-life insurers to use the premium allocation approach for the majority of contracts that they underwrite. They do not expect material differences in the accounting results compared to the existing approach.

Scope of Application

In most jurisdictions, the definition of an insurance contract is largely the same under IFRS 17 and IFRS 4. As such, the scope of application of IFRS 17 is not expected to be significantly different. Examples of contracts underwritten by life insurers currently accounted for under IFRS 4 but will not be included under IFRS 17 are fixed fee service contracts, unbundled service contracts, pension contracts. In one jurisdiction, it is likely that more unit-linked contracts will be captured under IFRS 17. For non-lifenon-life insurers, the scope of application is expected to remain broadly the same.

Current Estimates—General

There is currently some form of current estimate component in most jurisdictions. For life insurers, differences include existing prescription of discount rates and mortality rates (effectively requiring historical, instead of current, information to be used), treatment of discretionary benefits, implicit risk margins and mechanism to smooth release of future profits. The way current estimate is disclosed under IFRS 17 may be different, mainly due to the introduction of the contractual service margin. For non-lifenon-life insurers, the liability adequacy test currently required in a few jurisdictions effectively introduces the concept of current estimate in the valuation of non-lifenon-life contracts.

Current Estimates—Future Cash Flows

No major differences expected. For life insurers, differences arise from timing of revenue recognition, explicit allowance for surrenders, future attribution of discretionary benefits, explicit allowance for expenses and allowance of tax treatment. For non-lifenon-life insurers, differences are mainly due to a wider range of cash flows that will be captured under IFRS 17, for example, future expense cash flows.

Current Estimates—Discount Rate

There could be significant differences as some jurisdictions currently require life insurers to use risk-free rates or place limits in reference to risk-free rates. At the other extreme, in certain jurisdictions, life insurers currently use yields of their existing assets to determine the discount rates without adjusting for characteristics that are not reflective of the insurance obligations. In a few of the surveyed jurisdictions, non-lifenon-life insurers currently do not apply discounting. In several other jurisdictions, similar requirements for life insurers using risk-free rates also apply to non-lifenon-life insurers.

Current Estimates—Other Material Differences

Other material differences include different ways to assess loss recognition, disallowance of negative technical provision, minimum value based on contractual surrender value, recognition of acquisition costs and treatment of reinsurance.

Risk Adjustment for Nonfinancial Risk

Although this is not currently an explicit requirement in most jurisdictions, it is not expected to have significant impact because of hidden conservativism in current valuation approaches that effectively achieves the same result as a risk adjustment. In some jurisdictions, no difference is expected as the concept currently applies.

Contractual Service Margin

This is a new concept in most jurisdictions and could have significant impact, especially during transition and in terms of profit emergence patterns. However, existing hidden conservatism may already partially achieve similar effects, which may lessen the impact of the introduction of a contractual service margin. Moreover, in certain jurisdictions, day one profit is currently not recognised, which achieves a similar effect at initial recognition.

Subsequent Measurement and Profit Recognition

Not a concept in current accounting approaches. Currently, in most jurisdictions, any profit or loss due to valuation assumption changes is recognised immediately, instead of the more controlled way profit emerges under IFRS 17.

Contract Boundary

The criteria will most likely differ, which could have significant impact due to different capture of future cash flows. In some jurisdictions, expected future premiums currently excluded may be captured under IFRS 17.

Appendix IV. Transposition Approaches of IFRS Into Local Standards

Table 7.

Regulatory Approaches to the Use of Accounting Standards for Prudential Purposes

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Source: Financial Stability Institute and IMF staff based on survey responses.

Appendix V. Regulatory Approaches on the use of Accounting Standards for Prudential Purposes

Table 8.

Regulatory Approaches on the Use of Accounting Standards for Prudential Purposes

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Source: Financial Stability Institute and IMF staff based on survey responses.

The authors are grateful to Raihan Zamil and Esther Künzi for their valuable support with this paper. The views expressed in this paper are those of the authors and not necessarily those of the BIS, IMF, or the Basel-based standard setters.


In this paper, unless otherwise specified, the term ‘solvency’ refers to ability of an insurer to meet its obligations to policyholders when they fall due based on measures as specified by the insurance supervisor.


In this paper, ‘standards’ refers to standards issued by international or national standard setters.


Some jurisdictional specificities are not fully reflected in the figure.


In practice, insurance liabilities based on accounting standards could be higher than those calculated on regulatory basis.


Regulatory intervention should be designed to occur prior to triggering corporate insolvency laws


For more information on how low interest rates could impact insurers and possible supervisory responses to address the problem, see FSI (2017).


The proposed amendments to the IFRS 17 are expected to minimize any such accounting mismatch by allowing insurers to recognize income arising from the reinsurance contracts held to cover losses of the underlying insurance contracts.


At the time of publication, the IASB is consulting on a limited number of targeted amendments to the IFRS 17, which are not expected to change fundamental aspects of the standard.


In general, a bottom-up approach involves starting with the risk-free yield curve and adjusting the rates to reflect differences between the liquidity characteristics of the insurance contracts and the financial instruments underlying the rates. Alternatively, a top-down approach uses the yield curve that reflects market rates of return implicit in a fair value measurement of a reference portfolio of assets.


Risk adjustment for nonfinancial risk aims to reflect the compensation that the entity requires for bearing the uncertainty about the amount and timing of the cash flows that arises from nonfinancial risk.


Includes derivatives that have not been separated from the host insurance contract (after applying IFRS 9).


A proposed amendment would allow an insurer to allocate, on a systematic and rational basis, insurance acquisition cash flows that are directly attributable to a group of insurance contracts: (i) to that group; and (ii) to any groups that include contracts that are expected to arise from renewals of the contracts in that group.


Allocation of the CSM based on a unit of service determines the year-by-year pattern of recognition of profits. No day one gains. The allocation is revised for remaining CSM as the expectations for the pattern of service are updated.


‘Yes’ may include prudential adjustments application. ‘No’ means not permitted or not required.


Solvency II, implemented in 2016 before finalization of IFRS 17, is mandatory under EU law and is not within the remit of individual prudential regulators to change. Any changes will depend upon the review of the regulation.