IFRS 17 introduces significant changes to insurance contract accounting and will be challenging for insurers to implement. It requires more granular data, complex calculations, and changes to systems and processes. Insurers face issues with updating actuarial models, integrating processes, managing higher data needs, implementing new accounting approaches, and meeting disclosure requirements. A structured implementation approach is needed for a timely transition.

1. Implementation & Challenges of
IFRS 17
Insurance Contracts
Insurance Contracts

2. Agenda
The objective is to improve financial reporting by
providing more transparent and comparable
information across insurers.
Overview
01 Detailed information on The key changes in IFRS
17 as compared to IFRS 4.
Key Changes
02
Learn about Major challenges faced by the insurers
in the process of implementing IFRS 17.
Challenges
03 Learn about structured implementation approach
used for timely implementation of IFRS 17.
Solution
04

3. Overview
Introduction to IFRS 17
IFRS 17 – Insurance Contracts (“IFRS 17”)
details a new approach to accounting for
insurance contracts. It was issued by the
International Accounting Standards Board
(“IASB”) in May 2017 and replaces IFRS 4.
IFRS 17 applies to annual reporting periods
beginning on 1 January 2022. The objective is
to improve financial reporting by providing
more transparent and comparable
information across insurers. However, there
are certain challenges to the implementation
of this Standard.
The IASB, through various meetings has been
studying and discussing the challenges faced
by insurers and other stakeholders in
implementing IFRS 17 since the Standard was
first issued. As a result, twenty- five areas of
the Standard were identified where the
stakeholders faced challenges.

4. Seven critical areas out of the twenty-five areas of concern have been proposed for
amendment by IASB:
Your Text Here
Presentation of assets and liabilities
Scope
Allocating insurance acquisition cash flows
Accounting for acquired claims liabilities on transition
Accounting for investment services in an insurance contract
Reinsurance of insurance contract
Risk mitigation for direct participating contracts

5. However, we need to keep in
mind that with the
requirement to collect
granular data and the
changes to be made to the
systems and processes,
implementation of IFRS 17
will be a challenge even with
all the above-mentioned
amendments in place.

6. Key Changes
Insurance contract revenue will be lower, as
it will now be presented on an earned basis
and will exclude amounts that are considered
to be receipts of investment components.
Revenue and expenses will be
recognized as earned or incurred.
IFRS 17 requires insurers to apply its requirements at a level
of aggregation which it calls a ‘group’. These groups
comprise insurance contracts that share various
characteristics:
Insurance finance expense will be
excluded from insurance service
results and will be presented either
(i) fully in Profit/ Loss or
(ii) in Profit/Loss on a cost basis,
with the difference between the cost
rate and the current market interest
rate being shown in Other
Comprehensive Income, depending on
accounting policy.
BBA , PAA , VFA
IFRS 17 uses three different measurement approaches: Written premiums will be disclosed in
the notes to the financial statements,
along with significant detail about
how insurance liabilities have moved
during the period.
(DISCUSSED IN FURTHER SLIDES)
(DISCUSSED IN FURTHER SLIDES)

7. Approaches - BBA, PAA & VFA
c) The Variable Fee
Approach (VFA) —
for direct
participating
contracts. Insurance
contract liability is
based on the
obligation for the
entity to pay the
policyholder an
amount equal to the
value of the
underlying items,
net of a variable
consideration
charged for the
contract.
VFA
b) The Premium
Allocation Approach
(PAA) — a simplified
approach which can
be used for
contracts with a
duration of one year
or less. An insurance
contract is valued as
a pre-claims
coverage liability
(based on the
premium received)
and an incurred
claims liability.
PAA
a) The Building Block
Approach (BBA) —
for long-term
contracts. Insurance
contracts will be
valued using
fulfilment cash flows
plus the Contractual
Service Margin.
BBA

8. Characteristics of ‘Portfolio’
Portfolios may not contain
contracts issued more than one
year apart.
(a)
Contracts should be divided,
based on the expected level
of profitability, into: those
that are expected at inception
to be onerous (or loss-making);
those where there is no
significant risk that they will
become onerous in the future;
and contracts which are likely
to be onerous.
(c)
Portfolios should contain
contracts that are subject to
similar risks and managed
together.
(b)

9. CHALLENGES
Significant enhancements to the actuarial systems and processes
will be required to meet the challenges of IFRS 17. The Standard
requires changes to valuation assumptions; collecting, processing
and storing granular data and the number of test runs to be
conducted on the models.
1. Actuarial models and systems:
IFRS 17 represents a significant change for insurance finance functions and
will require system changes, process changes and training. Major challenges
faced by the insurers in the process of implementing IFRS 17 are:

10. CHALLENGES
IFRS 17 will bring in more transparency in the way that the
financial statements will look compared to the existing IFRS 4
standards. Insurers will face huge challenges due to the detailed
calculations and modelling involved to generate the required
numbers
2. Presentation and Disclosure
The calculation will require elements of both finance and
actuarial and complex computations to be performed to derive
the result which will include best estimate cash flows, risk
adjustment and discounting for different types of contracts.
3. Contractual Service Margin (“CSM”):

11. CHALLENGES
For the process to be successful, it is important to automate the
end-to-end process as much as possible. The entire way from data
capture to data quality checks and from management of cohorts
to calculation of CSM and CSM release – including GL postings and
report generation – should be part of an automated
process/workflow.
4. Process Integration:
The IFRS 9 – Financial Instruments standard can be implemented
in parallel with IFRS 17 and for contracts measured using the
Variable Fee Approach (“VFA”), there is a direct link with
reported investments. Insurers should consider both standards
together to understand dependencies and synergies between the
two.
5 .Interaction with IFRS 9:

12. CHALLENGES
Major challenges will be faced on generating, storing and
analyzing the high amount of data. Under IFRS 17, granular data
is required to be analyzed to identify and segregate the groups of
contracts. Insurers will also face challenges in improving the
quality and extraction of the data to ensure that valuation results
are appropriate.
6. Data
A recent survey carried out by EY shows that most of the cost of
implementing IFRS 17 will be on technology, systems and data, of
which actuarial modelling and finance systems are the areas
which will see the highest impact.
7. Implementation Costs:
The level of granularity, CSM calculation and transition adjustment are
expected to be the most complex.

13. A timely implementation of IFRS 17 involves
a structured implementation approach. It is
no doubt that with the implementation of
IFRS 17, the benefits will compensate for
the costs incurred.
With the implementation of IFRS 17, all the
shortfalls in the existing practice and IFRS 4
will be addressed such as inconsistent
policies, inappropriate discount rates and
ambiguous risk adjustment.

14. With the given challenges being faced by
companies across the world in implementing
IFRS 17, AJMS brings in its expertise in
providing consulting services as required by the
regulatory authorities and under the
requirements of IFRS 17.
Summary of
AJMS approach
and support

15. Thank You
Abhishek Jajoo – Partner & CEO, AJMS Global Consulting
Worked with various leading Insurance Companies, Banks, Investment companies, FIs, RE Funds etc. in the GCC region, both as
Engagement Partner or as part of the group. Expertise in the areas of IFRS 17, IFRS 4, Strategy, AML, CDD/EDD, KYC
Remediation, Compliance, Risk Management, ICAAP & Stress Testing, Corporate Governance, etc.
Contact Details: +971 55 765 8042 / abhishek.jajoo@ajmsglobal.com
Gaurav Baid - Director – Governance, Risk and Compliance, AJMS Global Consulting
He has extensive international professional experience of over 15 years in Assurance, Consultancy, VAT Compliance, Banking and
Operations, spread across institutions in the Gulf. Expert in the areas of Risk management, IFRS 17, IFRS 9, Internal Audit,
Compliance etc.
Contact Details: +971 55 410 7267 / gaurav@ajmsglobal.com
Shyma Jayapalan - Senior Consultant – Governance, Risk and Compliance
She has extensive working experience in Risk and Compliance in accordance with DFSA and CBUAE Regulations. She has
experience in reviewing process and policies for Insurance Companies and the likely changes in presentation of Financial
Statements under IFRS 17.
Contact Details: +971 52 849 5395 / shyma@ajmsglobal.com
AJMS Contacts: