The Insurance Bureau of Canada says consistency in financial reporting is essential for informed-decision making, but they say as the property and casualty (P&C) insurance sector continues to adopt and adapt to International Financial Reporting Standard 17 (IFRS 17), companies and stakeholders are interpreting and applying the new framework inconsistently. 

The requirement for Canadian companies to use IFRS 17 for insurance contracts, took effect on Jan. 1, 2023. IFRS 17 affects how profitability and performance are measured, understood and compared. “Certain insurers may have different interpretations for the movement of line items, such as expenses and financing income,” IBC states, providing an example. It formed a working group to develop metrics for the industry’s use back in March 2023. 

“To help address these inconsistencies, the IBC, along with its member-led working group, has published a paper with eight KPIs (key performance indicators) specific to IFRS 17,” they add. “These KPI ratios are a step towards harmonized reporting, making it easier for regulators, governments and market observers to compare and understand financial results.” 

The paper, outlining how the eight KPIs are calculated, states that the metrics are designed for clarity and comparability. It looks at IFRS 17 definitions, explains each ratio’s advantages and disadvantages, financial indicators and their impacts (favourable, unfavourable and neutral) and at how IFRS 17 differs from previously accepted accounting standards.

New financial concepts 

“Most metrics under IFRS 4 can’t be compared with those in IFRS 17. For example, insurance companies under IFRS 17 no longer report earned premiums or incurred and undiscounted claims. In addition, IFRS 17 includes new financial concepts such as net insurance finance income and expenses, insurance service results (a new underwriting profit measure),” they add.

“Because the IFRS 17 KPI landscape is still evolving, it will be a few years before consistent metrics emerge and year-over-year comparisons can be accurate. However, improving consistency across companies during this time of transition will help improve benchmarking as the system matures.” 

Items to consider when implementing the IFRS 17 KPIs suggested, include the use of custom and existing KPIs internally by companies: “IBC understands that companies may have their own set of internal KPIs that differ from the publicly reported metrics,” they write. “IBC does not aim to set the standard for how companies measure profitability, but aims to come to a consensus on possible metrics. Individual companies, regulators, governments and other stakeholders should use the preliminary KPIs in this paper for informational purposes only.”