IFRS 17: Consequences from Implementation of the New Accounting Standard for Insurance Contracts

Peter Østergaard

Student thesis: Master thesis


With the implementation of IFRS 17 for Insurance Contracts, the International Accounting Standard Board (IASB) is attempting to create a unifying accounting standard for insurance companies across countries. The old accounting standard IFRS 4 was created as a temporary accounting standard that allowed countries to create their own standards. With IFRS 17, the financial reporting and annual reports in Denmark will move from a balance sheet principle, based on Solvency II, to an income statement principle. The current IFRS 4 regulations in Denmark are closely related to Solvency II which will create some challenges for the Danish FSA (Finanstilsynet) when deciding how much of IFRS 17 will be implemented outside of the mandatory public listed entities. IFRS 17 introduces three different measurement model that are dependent upon the underlying insurance contracts. The main model will be the so-called Building Block Approach, also referred to as the general approach, which introduces the Contractual Service Margin with the purpose to spread the insurance profit throughout the insurance contracts lifetime. Further, the general approach contains its own standards for discounting cash flows and risk adjustments for non-financial risks. These are designed to ensure the insurance provisions are measured at a valuation that a knowing third person would value the insurance contracts. The remaining approaches are the Premium Allocation Approach designed for insurance contracts that last less than one year and the Variable Fee Approach, which is for insurance contracts with cash flows from underlying financial assets. Based on an analysis of the new standard and a comparison to Solvency II and IFRS 4, this thesis proves how the new standard increases the information and the possibility for comparisons between countries and other non-insurance industries. Additionally, this thesis is designed to substantiate that IFRS 17 is aligned with other recently published standards in the thorough process behind the standard. For calculation of cash flows, IFRS 17 uses probability-weighted calculations. These are aligned with the new provision standard under IFRS 9. Further, the treatment of revenue from the insurance contracts is also aligned with IFRS 15 Revenue from Contracts. In conclusion, this thesis focuses on three different approaches to implementation of IFRS 17 in Denmark, each with its own strengths and weaknesses. The discussion shows a dependency of the Danish FSA to decide which insurance companies have to bear the cost of implementation. The decision for implementation method also relies on its previous standpoint that the Danish “Regnskabsbekendtgørelsen” should be aligned with the Solvency II standards, which do not fully comply with IFRS 17. If they decide on a full implementation, it is expected the implementation cost will be significant for the entire insurance industry, and if they decide on a partial or no implementation, the public traded companies alone will bear the cost.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2019
Number of pages86