IFRS 17: In search of better answers

SUITS THE C-SUITE By Charisse Rossielin Y. Cruz

Business World (10/30/2017 – p.S1/4)

(Second of two parts)

In the first part of this article, we took a deeper look at the newly released International Financial Reporting Standards (IFRS) 17, Insurance Contracts, issued in May 2017. Specifically, we discussed some of the provisions in the new standard which may prove most challenging to insurance companies as they begin implementing the new standard, including classifying and accounting for insurance contracts, defining the unit of account, determining the measurement model and setting and updating assumptions.

We will now present other significant areas that companies need to take into account.


The International Accounting Standards Board recognizes the importance of the interaction between IFRS 9 and IFRS 17 and therefore gave insurance companies: (1) temporary exemption from IFRS 9, i.e., an option to defer adoption of IFRS 9 alongside adoption of IFRS 17 to Jan. 1, 2021; and (2) the overlay approach, i.e. exclusion from profit or loss of the difference between the amounts recognized under IFRS 9 and Philippine Accounting Standards (PAS) 39 for specified assets relating to insurance contracts. It also provides some relief to companies that will adopt IFRS 9 on Jan. 1, 2018 by granting them the ability to reclassify and re-measure the financial instruments upon adoption of IFRS 17.

Local insurance companies, to some extent, have asset-liability matching in place, but given the limited investible options, most of the liabilities would usually run well beyond the maturities of the corresponding assets.

Insurance companies may have to revisit their asset-liability strategy in light of applying Philippine Financial Reporting Standards (PFRS) 9 alongside IFRS 17. Companies may also consider holding a dialogue with the Insurance Commission (IC) regarding certain restrictions on investments in order to enable proper matching of their liabilities against the assets.


The amortization and tracking of the contractual service margin (CSM) pose a significant challenge to insurance companies, particularly for life insurance companies, as these should be done over the contract period. While the concept of setting up and maintaining subsidiary ledger balances is not new to insurance companies, sub-ledger amounts are usually transactional in nature, the CSM balances are actuarially computed and updated at each reporting date.

Insurance companies may consider amortizing and tracking the CSM balances in the actuarial valuation system, in the general ledger system, or in a separate data warehouse. They will have to evaluate which solution would be both economically feasible in the short-term (i.e. initial cost of investment) and in the long-term (the cost of compliance every reporting period).


Meeting the requirements under IFRS 17 will lead to more transparency in the financial statements regarding the insurance company’s source of earnings. The additional disclosure requirements, particularly around the roll-forward analyses of insurance contract liabilities, would entail that the insurance company have granular data, efficient processes and robust systems to produce the information in a timely manner.

Insurance companies may have to review how to structure the data in their systems to meet the required presentation and disclosures of IFRS 17. Given the level of detail required as disclosures, companies may also consider using this information as part of their internal or management reports.


While the effective date of adoption of IFRS 17 is on Jan. 1, 2021, comparative figures are required for the period beginning Jan. 1, 2020. The standard provides two alternatives to the full retrospective approach if this approach is impractical — the modified retrospective approach and the fair value approach. The insurance company may apply a different approach to each group of contracts.

Insurance companies may have to assess whether they have sufficient quality data required to calculate the balances at transition and the implication on the company’s data collection, maintenance and reporting processes moving forward. Companies would also have to address the inconsistency that comes with the first set of numbers reported under IFRS 17, given that various transition approaches may have to be applied to different groups of contracts.


Transitioning to IFRS 17 is only half the battle — the next challenge for insurance companies is to ensure a seamless move to BAU. Insurance companies will most probably be able to identify areas for improvement after the first set of numbers under IFRS 17 is produced. The goal is to get to a state of BAU that is sustainable, yet flexible enough to accommodate any changes that may arise from any new interpretative guidance or amendments that will be issued in the future. Furthermore, insurance companies will have to anticipate that the IC and the Bureau of Internal Revenue (BIR) may prescribe additional requirements to meet their respective objectives. Both IC and the BIR have the option of aligning their requirements with IFRS 17 or not.

The effective date of IFRS 17 is more than a couple of years away, but it will be most beneficial for insurance companies to start seeking the answers to these questions as early as now in order to more fully explore what options are available to them.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

Charisse Rossielin Y. Cruz is a partner of SGV & Co.