IFRS 17 Implementation

Tackling the operational complexities of the new insurance standard using adaptable modern platform based technology solutions

IFRS 17 (the Standard) is effective from January 2023 and is a replacement to the interim IFRS 4 Standard of Reporting for insurance contracts. At a high level, the Standard, which is very much principles based, determines:

  • When and how to recognise insurance contracts;
  • How to measure these contracts;
  • When to recognise profits or losses on the profit and loss account; and
  • How to present and disclose insurance contracts

These requirements have an impact on the insurer’s finance; actuarial and risk functions and impacts source system through to valuation engines and accounting & reporting tools. Insurers and reinsurers are working hard to get ready for the Go Live Date of IFRS 17 to ensure that they have appropriately modified operations to accommodate the new accounting standard. We will expand on the operational changes in this article.


The goal of IFRS 17 is essentially to:

  • provide a global framework for how insurers and reinsurers (mainly listed firms) should prepare and disclose their financial statements;
  • improve transparency regarding the insurer’s & reinsurer's financial position, performance, and risk exposure; and to
  • improve the level of disclosure and to make comparisons of the financial statements easier across the insurance industry.


One of the core requirements of the Standard relates to the measurement (IFRS Par 30-52) of insurance contracts. Under IFRS 17, there are three possible measurement models depending on the nature of the contract:

  • General Measurement Model (GMM)
  • Premium Allocation Approach (PAA)
  • Variable Fee Approach (VFA)

The GMM is the default measurement model for insurance contracts. For contracts with a coverage period shorter than one year, there is the potential option to choose the PAA as a simplified measurement model. For contracts with direct participation features, it is mandatory to use the VFA. For contracts that do not classify as direct participation, the use of the VFA is not allowed.

General Measurement Model (GMM)

The GMM is considered the default approach to modelling non-participating contracts. Under the general model, a contract is valued using fulfilment cash flows, which is defined as the probability-weighted and discounted expected future cash flows plus an appropriate risk adjustment and Contractual Services Margin (CSM). The workings of the CSM is effectively a way of deferring profits over the expected term of the contract. The General Model is also generally referred to as the “Building Block Approach” (BBA) as the general valuation for liabilities are based on the underlying components or building blocks listed below (i.e. fulfilment cash flows; CSM and Risk Adjustment).

Premium Allocation Approach (PAA)

The PAA is a reasonable approximation of the general model suitable generally for insurance contracts with a term of a year or less. The contract value is estimated as a liability for the remainder of the coverage period. An entity is permitted to apply the PAA to measure a group of insurance contracts if, at inception of the group: (a) the coverage period of each contract in the group of insurance contracts is one year or less; or (b) the entity reasonably expects that the PAA would produce a measurement of liability for remaining coverage for a group of insurance contracts that would not differ materially from the measurement that would be achieved by applying the GMM. It is similar to the methods used in IFRS 4, so the change to IFRS 17 under the PAA could be less significant; however the insurer will need to justify PAA eligibility.

Variable Fee Approach (VFA)

VFA is a variation of GMM. The VFA applies to contracts with features of direct participation, for example with-profit policies.

Figure 1: General Measurement Model                            Figure 2: Premium Allocation Approach

The rest of this article focuses on the key operational complexities of the Standard; as a result of the introduction of a new measurement model and associated requirements (for example granularity of calculations and additional disclosures) and identifies ways to address some of the key operational complexities in a controlled and efficient manner.

For more information regarding the new technical requirements that the IFRS 17 Standard brings, you can refer to Actuartech’s introductory training course which covers the key technical requirements of the Standard, information below:

Actuartech’s HANDS ON IFRS 17 INTRODUCTORY TRAINING course; further detail here.


As a result of the technical changes that IFRS 17 brings; there are significant operational challenges to insurers; for example because of the complexities that require more transparency, comparability, additional disclosures, and more granular reporting. Insurers face data, system & technological, and disclosure challenges, for example as outlined below.

Data complexities

In order to perform the calculations required for The Standard more granular data inputs are needed, for example:

  • Information about the insurance contract’s profitability at inception,
  • Information about the insurance contract’s risk & product type;
  • The applicable measurement model;
  • Best estimate and risk adjustment related assumptions; for the group of contract
  • Actual and expected cash flows;
  • The split of expenses between directly and indirectly attributable components; and
  • Specific reinsurance related information; etc.

In addition, there is a challenge to maintain historical databases; and continue to maintain them as the Standard require historical data (data at inception; for example IFRS 17 Par 25-28) and data for subsequent measurement for the calculation of CSM (for example IFRS 17 Par 40-46) as well as other reconciliations.

In addition, the Standard requires insurers to provide more detail of reconciliations (for example IFRS 17 Par 98-116); which will require a robust end to end audit trail from source to disclosures.

There are further challenges to allow for enhanced data processing times given the tight reporting timelines.

System and Technological complexities

Due to variability in product types; and data sources and granularity, it may be challenging to create standardised IFRS 17 software solutions that can cater for all product; reporting and data types. And off the shelf software could be too costly or may require significant effort to embed into the insurer's unique IT landscape (depending on the infrastructure and flexibility of the solution).

Insurers face the potential challenge to redefine their target solution design (including a new end to end operating model) by combining potentially multiple software and storage solutions. This could be a very complex process for insurers.

Disclosure and associated reporting complexities

There is a need for a Chart of Account (CoA) that allows the insurer to meet the requirements of IFRS 17 for each reporting entity. Due to the significant changes from IFRS 4 to IFRS 17, a review of the CoA is essential. The level of granularity of information and disclosure requirements should be on the forefront of any decisions made in developing new CoAs.

IFRS 17 contains qualitative and quantitative disclosure requirements; required to be produced in very tight timeframes. The objective is for an entity to disclose information that, together with information presented in the primary financial statements, provides a basis for users of its financial statements to assess the effects that insurance contracts have on its financial position, financial performance and cash flows (IFRS 17 Par 93). Given the complexities of the Standard; sufficient time will need to be devoted to analysing and interpreting any results prior to reporting.

In addition to ensuring compliance with the Standard after 1 January 2023 the Standard Requires (for example IFRS 17 Par C3-C33) insurers to assess retrospectively the impact on in-force business; as if IFRS 17 has always been in place. Even though certain modifications are allowed (with sufficient justification), this Transition Requirement places additional operational strain on insurers. Many of the concepts introduced in this article will apply to new business and retrospective business alike, especially where the impact is material.

Now that we have explained, at a high level, the key operational complexities of the Standard we will start to look at ways to address these; by looking at the potential introduction of solution components and their scope that could support the insurer to address the challenges; either on their own (to tackle parts thereof) or as part of a robust end to end solution.

In the full version of the article in our IFRS 17 Resource Library, we further discuss:

  • Core Solution Components 
  • How to successfully address the operational complexities of the Standard 
  • Presenting a modern platform based solution approach

The full article can be found in our IFRS 17 Resource Library and is free for our IFRS 17 Resource Library subscribers. To read the full article, or to sign up, click here.

For any questions, or to see how we can assist you in your IFRS 17 journey, please email us at info@acturtech.com.

IFRS 17 Implementation

Written by Valerie Du Preez

This post was certified by Actuartech on

Review: This article is well-researched and provides valuable information.

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