Insurance Revenue

Study guide: Exam 6C

Insurance Revenue is the IFRS 17 top line: the consideration an insurer becomes entitled to in exchange for services provided in the period. It replaces written and earned premium on the face of the income statement, and it deliberately excludes any investment or deposit component — amounts the insurer would repay to the policyholder regardless of whether an insured event occurs.

$\text{Insurance Revenue} = \text{Expected claims and expenses} + \text{RA released} + \text{CSM released} + \text{Acquisition amortisation}$

Under the PAA, revenue is the premium allocated to the period — normally on a time basis, or on the basis of expected claim release where risk is not spread evenly. This is close to the old earned premium, so a Canadian P&C insurer's revenue line looks familiar.
Under the GMM it is built up from the components released in the period: expected claims and expenses, the risk adjustment released as risk expires, the CSM released for services provided, and the amortisation of acquisition cash flows.
Revenue is not premium. The differences that most often surprise: deposit components are excluded, ceded premium is not deducted from revenue (it appears separately), and a group with a Loss Component recognises revenue on only the non-onerous portion of the LRC.
Reinsurance held is presented separately, never netted. The income statement shows insurance revenue, insurance service expenses, and then the net expense (or income) from reinsurance contracts held as its own line.
Comparability improved, at a cost. Insurance revenue is intended to be comparable with revenue reported by non-insurance businesses — an explicit IASB objective — but it broke the continuity of decades of premium-based analysis, which is why insurers disclose written premium as a supplementary measure.

From Written Premium to Insurance Revenue A PAA insurer writes $\$300$ million of premium in the year, of which $\$170$ million is earned. It cedes $\$55$ million of premium to reinsurers, $\$32$ million of which relates to coverage received in the year. One group is onerous, with a loss component releasing $\$6$ million against expected claims of $\$40$ million in the year.

What is insurance revenue?
Answer Start from earned premium and adjust:

Written premium of $\$300$ M is not revenue. Only the portion relating to coverage provided is.

Ceded premium is not deducted. The $\$55$ M appears in the separate reinsurance line, not against revenue. Netting it would be the classic error.

The loss component reduces revenue. Revenue is recognised only on the non-onerous portion of the LRC, so the $\$6$ M released against the loss component is excluded.
 $\begin{align*} \text{Insurance revenue} &= \$170\text{M} - \$6\text{M} \\ &= \$164\text{M} \end{align*}$ 
Separately, the income statement shows net expense from reinsurance contracts held of $\$32$ million (the ceded premium relating to coverage received) less amounts recoverable — a single net line, not spread through revenue and expenses.

The reconciliation an analyst needs: written $\$300$ M → earned $\$170$ M → revenue $\$164$ M, with $\$55$ M of ceded premium and $\$6$ M of loss component release explained separately. An insurer that reports only the $\$164$ M has told the reader almost nothing about volume, which is exactly why written premium survives as a supplementary disclosure.