Exploring IFRS 18: what insurers need to know

IFRS 18 – Presentation and disclosure in financial statements is set to replace the IAS 1 – Presentation of financial statements and will be effective for the period beginning on 1 January 2027. IFRS 18 applies to all entities, including insurance companies.

For insurance companies, IFRS 18 follows a series of transformative accounting standard milestones. While IFRS 17 brought substantial changes to the presentation and measurement of insurance contracts, IFRS 18 looks at further enhancing transparency and comparability of financial statements.

This new standard brings changes to the presentation of financial performance by introducing enhancements on:

  • The structure of the statement of profit or loss (definition of categories of income and expenses as well as mandatory subtotals);
  • The requirements on aggregation and disaggregation of financial information; and
  • The information provided by companies on certain performance indicators.

Among other things, IFRS 18 will also amend IAS 7 – Cash flow statement with targeted improvements.

Preparing for IFRS 18 will vary from one company to another, depending on the way in which financial information is currently communicated and ability to upgrade their systems and data.

For more details on IFRS 18, please refer to our publication highlighting the ten key points of the standard (available here).

Below, we take a closer look at what IFRS 18 may imply for insurers and how it could adjust the way financial information is communicated.

What will the income statement look like?

One of the main areas that IFRS 18 mandates is a defined structure to the income statement, introducing new distinct categories to classify income and expenses, i.e. Operating, Investing and Financing.

The specific nature of insurers’ business models leads to classifying some income and expenses in the Operating category, whereas these income and expenses would be classified under Investing or Financing for non-insurers.

How to classify income and expenses from insurance and investments contracts?

IFRS 18 acknowledges the classification of some income and expenses arising from insurance and investments contracts. It requires that the following items are classified in the Operating category:

  • finance income and expenses from insurance contracts within the scope of IFRS 17 ; and
  • income and expenses from issued investment contracts with participation features recognised applying IFRS 9.

This classification is aligned with insurers business model and provides operational relief in terms of documentation requirements.

Is there any impact on insurance service expense?

IFRS 18 requires the interest components of IAS 19 – Employee Benefits and IFRS 16 – Leases liabilities to be reported under the Financing category. These interest costs are often included in the fulfilment cash flows (within overhead costs attributable to the fulfilment of the contract included in the cash flow boundary). In June 2024, during the EFRAG and IASB Educational Session[1], IASB member Hagit Keren acknowledged the potential misalignment with existing IFRS 17 practices. She noted that the IASB had to weigh the overall outcome and avoid excessive complexity from tailoring standards to specific industries.

When material, this may therefore warrant further analysis to fully understand the implications.

How to classify income and expenses from assets?

To classify income and expenses arising from the insurance portfolio (such as certain financial assets and investment properties) in the Operating category, an entity must invest in those assets as part of their main business activity (“specified main business activity investing”).

While this may seem evident for insurers, determining whether an entity meets this criterion is a factual assessment, not a presumption. It requires judgment and must be supported by evidence.

A key challenge lies in identifying which assets qualify as being held in connection with the main business activity. This evaluation must be conducted either on an asset-by-asset basis or by grouping assets with similar characteristics.

Income and expenses from other assets that do not meet this criterion must be presented in the Investing category such as investment properties held outside the main business activity.

What about associates and joint ventures?

Insurers account for associates and joint ventures either using the equity method or by measuring them at fair value through profit or loss (FVPL). Indeed, under IAS 28, the FVPL option is available for eligible investments backing some insurance contracts.

IFRS 18 requires that income and expense from associates and joint venture measured under equity method are classified in the Investing category regardless of whether they are invested in as part of the main business activity (see above) or not. This may result in misaligning the presentation compared to other assets. The standard gives two options to avoid mismatches:

  • The opportunity to include in the statement of profit or loss below the operating profit or loss, a subtotal ‘operating profit or loss and income and expenses from all investments accounted for using the equity method’; or
  • Alternatively, IFRS 18’s transitional provisions reopen the possibility offered by IAS 28 to elect fair value through profit or loss (FVPL) measurement for this investment. This option would allow insurers to benefit from the same option used under IFRS 17 transition to reduce mismatches. The change must be applied retrospectively.

While the option helps reduce mismatches, it might not address the presentation misalignment for all equity-accounted assets backing insurance contracts. In addition, it will not be possible to switch to the equity method for investments where the fair value through profit or loss option has been previously elected.

Will there be impacts on the granularity of disclosures?

IFRS 18 establishes new guidelines for how information should be presented in both the primary financial statements and the notes. The requirements cover the principles for aggregating and disaggregating information. In this context, additional requirements are set out for the presentation of operating expenses. While IAS 1 already required dedicated disclosures on the expenses by nature, IFRS 18 enhances this requirement. It mandates a more granular breakdown for entities presenting their operating expenses by function which is the case under IFRS 17. Specifically, defined nature expenses, such as depreciation, amortisation, employee benefits and impairment losses, must now be disaggregated in the notes to show their allocation between insurance service expenses and other operating expenses (including non-attributable expenses).

This enhanced disclosure introduces new challenges for insurers, particularly in terms of data granularity, system capabilities and the need to align internal reporting processes with the new presentation requirements. 

In addition, the standard requires that the labels used be as precise as possible. Companies are encouraged to limit the use of vague labels (such as “other”).

What about key performance indicators?

IFRS 18 introduces a more structured and transparent approach to performance reporting by requiring entities to disclose management performance measures (MPMs) in a dedicated note.

The standard provides a precise definition of an MPM. It is:

  • a subtotal of income and expenses;
  • used outside of financial statements (in written financial communication);
  • that reflects management’s view of an aspect of the performance of the entity as a whole; and
  • that is not a subtotal of income and expenses authorised by IFRS 18 (i.e. IFRS 18.69 and IFRS 18.118) or a subtotal required by other IFRS standards.

KPIs that meet the definition of MPM must be clearly defined and reconciled to the nearest subtotal or total in the statement of profit or loss, as required by IFRS.

While some insurers are already well-advanced in reconciling alternative performance measures (APMs) to financial statement line items and can therefore build on existing practices, others will need to develop these disclosures from scratch. This may involve identifying relevant indicators, defining consistent methodologies and implementing new reporting processes to ensure compliance.

Some MPMs will resemble those used in other sectors (e.g. adjusted operating profit, adjusted net profit), but a key challenge for insurers will be identifying indicators specific to insurance activities. For life insurers, many commonly used metrics, such as the contractual service margin (CSM) and related indicators, are derived from the balance sheet and therefore fall outside the scope of MPMs. For non-life insurers, questions may arise around the use of the combined ratio or non-GAAP indicators, which could, under certain conditions, meet the definition of an MPM.


[1] Summary report on Educational Session for Financial Institution available here.