IFRS in insurance: contributions, benefits and drawbacks

The IFRS are elaborated by IASB (International Accounting Standards Board) whose headquarters are located in London.

Established in 1973 by ten countries including the Unites States, Japan, Germany, United Kingdom and France, the IASC (International Accounting Standards Committee) was the first body entrusted with the establishment and the worldwide promotion of the accounting and financial information standards. More than a hundred countries are now affiliated members. In 2001, this body was renamed IASB.

IFRSThe standards issued prior to the first of April 2001 are named IAS (International Accounting Standard). The standards named afterwards are named IFRS.

In 2002, the European Community required from listed corporations subject to its economic space to submit their consolidated financial statements in keeping with IAS/IFRS standards as of January 1, 2005.

The obligation to apply these new accounting regulations to non-listed corporations remains within the competence of each member state of the Union.

IFRS: Objective

The need to set up a new benchmarking has been imposed following the finding that there are too many national accounting standards which strain accounts elaboration and benchmarking by analysts and investors.

The first objective of these new standards is, therefore, the worldwide harmonization of accounting information to make the documents submitted accessible to all concerned parties.

IFRS: General presentation

Applied to insurance, the IFRS will introduce changes at the accounting level as well as in terms of risk underwriting. They have an impact on all insurance classes of business: life, non-life and reinsurance.

The IAS/IFRS relative to the insurance companies

NormsScope of application
Presentation of the financial statements
IAS 19
Employee benefits
IAS 32
Presentation of the financial instruments
IAS 39
Evaluation of the financial instruments
The insurance contracts
Tthe financial instruments disclosure

With insurance being a complex activity, IASB has proposed the introduction of the IFRS in two phases.

Phase 1: In use since 2005 in the European Union, this phase pertains to the IFRS 4, IAS 32 and IAS 39.

Phase 2: It is designed to produce an evaluation of corporate engagements according to regulations in line with the markets designated by IASB. This phase is likely to be implemented in 2011.

IFRS applied to insurance: The main contributions


The greatest novelty introduced by the IFRS 4 is the assets' accounting according to the fair value, that is, the real value or the "market value". The fair value concept is used in Anglo-Saxon accounting to determine the value of detained assets. It implies accounting assets at their market value and no longer at their historical cost.

The impact of the new IFRS accounting standards:

  • The definition of the insurance contract: a significant risk transfer is required so that a product can be characterized as an insurance contract. Henceforth, investment and saving contracts, which do not guarantee uncertain risks, cannot fall within the category of "insurance contracts".
  • The requirement of more ample disclosure on the management and the terms of the insurance contracts.
  • Estate assets, being evaluated at their fair value, have an impact on the balance sheet statements and thus on the results and the shareholder's equity.
  • The insurer's engagements are accounted for in market value by using the "Best Estimate" calculation, the best possible estimate of engagements.
  • The insurance companies are necessarily required to provide a certain number of additional information: financial flow and shareholder's equity variation tables, ...
  • The provisions for equalization and catastrophe claims are, henceforth, accounted in the shareholder's equity.
  • The deferred acquisition fees are, henceforth, banned.
  • The information regarding the hypotheses utilized by each company for items' evaluation and accounting must be argued, just like the effect of hypotheses changes.

IFRS: Impact on insurance companies

  • In life insurance, investment strategies are devised on longer-term basis. They are established according to the liability period.
  • In non life insurance, liabilities are not updated. The IFRS require accounting according to the fair value principle. The Insurance companies having a non life activity are, therefore, required to proceed to the updating of all their contracts.
  • With the new standards, the insurers become more sensitive to risks, which provides reinsurance with greater capacity.
  • The IFRS standards provide for additional control on each insurance contract including by-products (which need to be isolated and evaluated at their fair value).
  • Regarding the publications, the IFRS provide for highlighting the most relevant indicators of each activity: the new pieces of business in life insurance and the gross written premiums in non life insurance.
  • Computer systems have to be modified to comply with new requirements.

IFRS in insurance: Benefits

The switchover to the IFRS provides many benefits. It allows:

  • a harmonized system worldwide
  • an easy comparison with companies' ratings
  • a cautious management, with long-term investments getting safer and less volatile
  • a greater transparency in terms of information and better communication
  • a better visibility of risk exposure for each insurance company
  • an accounting based on the economic reality rather than on fixed legal standards

IFRS in insurance: Drawbacks

  • The fair value method would be, according to the insurance companies, behind the important volatility of the shareholder's equity and of the result, favoring a short-term corporate vision. With the financial markets being unstable, the concept of fair value as regards assets' representation is likely to trigger important modifications in the financial statements from a year to another.
  • The implementation of these reforms are very difficult in a sector as complex as that of insurance because there are so many players and types of activities.
  • The establishment of those new standards is costly as it involves the modification of the software systems as well as a revision of the processes.
  • The professionals and the audit agencies are concerned about accounts' certification based on estimates and hypotheses and no longer on legally established regulations.

IFRS: Use around the world

IFRSThe obligation to apply the IFRS in the European Union has been followed in many states. Australia, Canada, Brazil, New Zealand and South Africa have also set up the obligation principle.

China and India have, among other states, chosen the convergence of national standards toward the international benchmarks.

Other states, in full restructuring of their regulations, are keen on establishing an accounting system in line with the IFRS; this is the case of Algeria.

The United States have maintained the US GAAP standards,yet IFRS standards are permitted for listings by foreign companies.


In the European Union, the IFRS are applicable for the consolidated accounts of listed companies since January 1, 2005. Non-listed companies may, voluntarily, swing their financial statements toward these new standards.

Despite some critics, this large-scale project will make it possible to codify and harmonize the financial statements worldwide. The road ahead is still long and rocky and more time is needed before a totally efficient system can be reached, yet the States' willingness for further prudence and transparency is very strong.

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