Why does an insurer’s top line no longer show premiums? If you have opened an IFRS 17 income statement looking for premiums written, you will have found insurance revenue instead, followed by insurance service expenses, an insurance service result and a separate block for insurance finance income or expenses. For many students and finance professionals the hard part of IFRS 17 presentation is not the vocabulary. It is working out where each line comes from and how revenue in a year relates to the cash the insurer collected.
Inside the lesson
This lesson on IFRS 17 insurance revenue and the new statement of profit or loss follows one group of fire and allied perils policies that Kruger General Insurance Limited writes for small commercial properties. Every concept is tied back to that group.
- Insurance revenue: what service does it depict and what is it measured on?
- Insurance service expenses: what goes in and how do they sit against the expected claims priced into the contract?
- The insurance service result: why does IFRS 17 keep it apart from finance amounts?
- The contractual service margin: what does it represent and when does it become profit?
- The insurance contract liability: how do its movements connect to the lines in profit or loss?
Two elections, followed through
A company’s numbers follow the choices it has made, and the lesson treats each one as a fork. The first asks whether a group that qualifies for the premium allocation approach is measured under it or under the general measurement model, and what each direction does to revenue, the liability and the notes. The second is the accounting policy for a portfolio’s total insurance finance income or expenses: all in profit or loss, or disaggregated between profit or loss and other comprehensive income. Both are set out as peers, with neither treated as the default.
The worked example measures the group at inception, assembles its revenue, traces the liability across the year and posts the journals. It then asks which conclusions travel beyond this group.
Start the lesson
Open the IFRS 17 presentation lesson and build the new income statement line by line, in Rand.
Questions about this topic
What replaces premiums at the top of an IFRS 17 income statement?
Insurance revenue takes that place, shown with insurance service expenses and an insurance service result that IFRS 17.80 keeps separate from insurance finance income or expenses. The lesson's worked example looks at how revenue in a year relates to the premium collected.
Which elections does the lesson cover?
Two. The first is whether an eligible group is measured under the premium allocation approach or the general measurement model. The second is the IFRS 17.88 policy for a portfolio's total insurance finance income or expenses, either all in profit or loss or split between profit or loss and other comprehensive income. The lesson follows both directions of each through to the statements and the notes.
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IFRS and SAM, one requirement at a time
Each week you get the Institute's new articles: one requirement of IFRS 17, IFRS 9, IFRS 15, IFRS 18 or SAM, worked on a South African case. You start with the free IFRS 18 readiness checklist, ten areas to work through before IFRS 18 takes effect, each with its paragraph reference.