Actuarial Notes

IFRS 17 Metrics Discussion Paper

By Insurance Bureau of Canada · 2025

Study guide: Exam 6C

Insurance Bureau of Canada's June 2025 paper outlining a set of key performance indicators for the P&C insurance industry under IFRS 17. It comes from the IFRS 17 KPIs Working Group that IBC's Finance Standing Committee formed in March 2023, and sets out IFRS 17's impacts on financial indicators, the basic financial definitions, considerations for implementing KPIs, and eight preliminary ratios with their advantages and disadvantages, to help the industry describe its performance and communicate with its stakeholders.

On the syllabus

Background

  • IFRS 17 took effect on January 1, 2023, intended to bring new transparency about insurers' underwriting and investment activities, more insight into their financial health, greater consistency globally and comparability between insurers.
  • IBC's working group was formed to discuss profitability measures under IFRS 17 and develop working metrics for P&C industry use; it reviewed global trends and regulatory metrics and the metrics its members used.

Purpose

  • To outline a set of KPIs describing industry performance within the IFRS 17 framework, and to help the P&C industry communicate with its stakeholders using them; individual insurers may use different KPIs based on their data.

IFRS 17 Impacts on Financial Indicators

  • Financial results and equity may appear more volatile; IFRS 4 metrics such as the combined ratio and loss ratio have changed; financial risks and investment income are presented separately from insurance performance; and greater granularity in contract groupings (level of aggregation) has added complexity.
  • Insurance service result: favourable — part of operating expenses and the discount unwind of claims are now excluded from insurance service expenses, which in 2023 and 2024 generally decreased the insurance service, claims and combined ratios.
  • Net investment result: unfavourable, from the reclassified discount unwind and change in discount rate of claims costs.
  • Net income: limited impact over the full contract life, since IFRS 17 primarily affects the timing of earnings; equity: increased volatility, though in 2023 and 2024 the vast majority of P&C insurers reported an increase.

Basic Financial Definitions for IFRS 17

  • Insurance Revenue — the premiums earned adjusted for a financing effect, if applicable, excluding investment components
  • Discounting
  • Net Finance Expenses (Income) from Insurance and Reinsurance Contracts — the effect of the time value of money and financial risk, including discount rate changes and the discount unwind (insurance finance income or expenses)
  • Insurance Service Expenses — only expenses directly attributable to fulfilling insurance contracts plus an allocation of fixed and variable overheads, unlike underwriting expenses under IFRS 4
  • Incurred Claims and Other Insurance Service Expenses
  • Amortization of Insurance Acquisition Cash Flows
  • Losses on Onerous Contracts
  • Liability for Incurred Claims
  • Adjustments to Liabilities for Incurred Claims
  • Allocation of Reinsurance Premiums Paid
  • Amounts Recovered from Reinsurers
  • Net Expenses from Reinsurance Contracts Held
  • Insurance Service Result — the profit earned from providing insurance coverage, similar to underwriting income
  • Investment Return
  • Net Investment Result

Considerations for Implementing IFRS 17 KPIs

  • 1 What are some of the key considerations in the development of KPI metrics under IFRS 17?
    • The selection depends on the availability of industry-wide data and on the user's perspective and purpose of analysis, and metrics need to be relatively easy for stakeholders to comprehend.
  • 2 How do IFRS 17 metrics for P&C insurance differ from IFRS 4 metrics?
    • In general they are not comparable: earned premiums, incurred claims and undiscounted claims are no longer reported, and IFRS 17 adds concepts such as net insurance finance income and expenses and the insurance service result.
  • 3 Is the process for establishing new IFRS 17 KPIs still ongoing? If so, what work is left to be done?
    • It will be a few years before consistent KPI metrics emerge and year-over-year comparison is more accurate.
  • 4 Can individual companies create custom KPIs?
    • IBC does not aim to set the standard for how companies measure profitability but to reach consensus on possible metrics; the preliminary KPIs are for informational purposes only.

IFRS 17 Preliminary KPIs

  • All are calculated from a company's income statement, and all cash outflows are defined as debits; using insurance revenue in the denominator instead of net premiums earned can make a meaningful difference for a company with relatively high ceded premium.
  • (1) Gross Insurance Service Ratio = insurance service expenses ÷ insurance revenue (the formula can also give the ratio on a direct basis); over 100% generally indicates a loss in insurance service result
  • (2) Reinsurance Impact Ratio = net expenses from reinsurance contracts held ÷ insurance revenue
  • (3) Net Insurance Service Ratio = (1) + (2)
  • (4) General and Operating Expense Ratio = general and operating expenses ÷ insurance revenue
  • (5) Operating Combined Ratio = (3) + (4)
  • (6) Net Insurance Finance Expense Ratio = net finance expenses (income) from insurance and reinsurance contracts ÷ insurance revenue
  • (7) Comprehensive Combined Ratio = (5) + (6), which can be used as the best proxy of the "old" IFRS 4 combined ratio
  • (8) Required Rate of Return on Cash Flow = net investment return ÷ net finance expenses (income) from insurance and reinsurance contracts

Sources