- Prudential valuation: Since 1 January 2016, Solvency II has required market-consistent valuation of all items in the prudential balance sheet, shifting the valuation basis from cost to fair value.
- Accounting starting point: The accounting balance sheet is no longer the starting point for prudential valuations under Solvency II. That is the core difference from the previous Solvency I approach, which applied until 31 December 2015 and used accounting valuations as the valuation base.
- IFRS valuation use: Solvency II already permits IFRS for valuing assets and liabilities other than technical provisions, but only where those valuations are market-consistent.
Reporting burden
IVASS’s single-track argument also reflects Italy’s accounting split. Earlier transition material described insurers preparing consolidated accounts under IAS/IFRS, while non-consolidated accounts used local accounting standards, except for listed insurers that did not prepare consolidated statements and used IAS/IFRS.
The administrative case is straightforward: IVASS has said the double accounting and prudential reporting burden increases administrative costs for undertakings. Using one set of accounting metrics for prudential requirements would reduce that duplication, provided Solvency II’s market-consistency constraints remain satisfied.
IFRS 17 liability measurement
IFRS 17 is relevant because it changed insurance-contract reporting from the interim IFRS 4 model to a measurement approach built around current estimates, risk adjustment and unearned profit. That brings accounting presentation closer to some prudential valuation concepts, without making the two frameworks identical.
- Liability measurement: Under IFRS 17, insurance contracts are measured using current, market-consistent discount rates and a risk adjustment for non-financial risk.
- Contract service margin: IFRS 17 recognises and measures groups of insurance contracts as fulfilment cash flows plus a contractual service margin, representing unearned profit in the group of contracts.
- Contract cohorts: IVASS material says contracts fall into at least three groups, including onerous and non-onerous contracts, and contracts subscribed in different annual periods cannot be grouped together.
Capital boundary
The capital question is where an accounting-driven simplification stops. IFRS 17 can provide measurement inputs, but Solvency II capital tools remain separate prudential constructs rather than accounting measures.
- Solvency II calibrations: IVASS’s 2024 annual report groups risk margin, extrapolation of the risk-free rate curve, volatility adjustment and Solvency Capital Requirement (SCR) interest-rate risk as Solvency II topics, but does not say those calibration rules change when an insurer uses IFRS 17 inputs.
- Risk adjustment: IFRS 17’s risk adjustment reflects the entity’s own risk tolerance, while regulatory capital requirements are calibrated to the supervisor’s risk tolerance. That keeps the IFRS 17 risk adjustment conceptually distinct from Solvency II measures such as the risk margin, matching adjustment and volatility adjustment.
Supervisory scrutiny
IVASS had already begun desktop and on-site inspections in the second half of 2024 to check how insurers were applying IFRS 17, showing that supervisory scrutiny was under way before any move to align accounting and prudential reporting tracks.
Earlier IVASS material said IFRS 17 was published in May 2017 and was then expected to enter into force in 2021, indicating the original planned implementation date before later international postponements.
Sources: ivass.it
