PRA publishes IFRS 17 regulatory reporting expectations

IFRS 17, which became effective on 1 January 2022, is reshaping how insurers present performance and risk in their primary financial statements. With $13 trillion in total assets across 450 listed insurers using IFRS standards now in scope, the Prudential Regulation Authority’s emerging expectations on regulatory reporting under IFRS 17 will sit on top of one of the largest accounting transitions the sector has faced.

The new standard is designed to make the financial statements of public insurance companies more consistent, transparent and comparable, which will feed directly into how prudential supervisors interpret reported capital generation, earnings quality and risk exposures. IFRS 17 requires an overhaul of financial statements, tighter system integrations and more granular auditability, so the PRA’s regulatory reporting expectations will operate against a backdrop of materially different data structures and control environments from those under IFRS 4.

Monetary policy and financial risk definitions

IFRS 17 defines financial risk and insurance risk, and explicitly classifies insurance risk as a non-financial risk. Financial risk is defined to include the risk of a possible future change in variables such as interest rates or equity prices, which creates a clearer separation between market-driven volatility and underwriting-driven variability in reported results.

This definitional split means that, within IFRS 17 reporting, movements driven by discount rates, asset returns and other financial variables are distinguished from changes in non-financial assumptions, including mortality, morbidity or lapse behaviour. Prudential and capital-related reporting expectations

Regulators had already communicated that, as preparations for IFRS 17 implementation progressed, more information about the possible impact of adopting the new standards on financial statements should become known or reasonably estimable. This expectation extends to the quantification of changes in equity, profit emergence and volatility patterns, which will inform how supervisors interpret movements in key metrics once firms begin submitting regulatory returns on an IFRS 17 basis. Parallel runs provide supervisors with comparative views between legacy and IFRS 17 figures, supporting the calibration of any future adjustments to prudential filters, capital planning assessments or stress-testing baselines that rely on accounting data. This increased granularity is expected to support more detailed supervisory reviews of earnings quality, assumption setting and model governance, even where the PRA has not yet formalised all aspects of its IFRS 17-based reporting taxonomy. Supervisory focus on implementation progress and disclosures

Regulators expected that, as implementation work advanced, insurers would be able to provide progressively more detailed disclosures on the expected impact of IFRS 17, rather than deferring quantification until after go-live. This expectation covers both narrative explanations of methodology choices and numerical estimates of the effect on key line items, which will form an important input into supervisory assessments of readiness and control effectiveness.

In parallel, firms were advised to accelerate testing and parallel running, which supports supervisors’ ability to compare pre- and post-IFRS 17 reporting and to identify outliers in impact profiles across peer groups. The combination of earlier impact disclosure and extended parallel runs gives regulators a longer runway to understand how IFRS 17 reshapes reported profitability patterns, including the timing of profit recognition and the interaction between financial and non-financial risk drivers. The group announced that adoption of IFRS 17 was expected to have a limited impact on its earnings, framing the change primarily as a presentational shift rather than a driver of economic performance.

Zurich also stated that cash remittances, dividend policy and its Swiss Solvency Test ratio would remain unaffected by IFRS 17, drawing a clear distinction between accounting outcomes and solvency metrics. The group said that IFRS 17 changes affect financial reporting only and that business operations remain unaltered, which sets a reference point for how supervisors may interpret similar assertions from other firms during the transition.

Zurich planned to report under IFRS 17 from the 2023 financial year, starting with its first-quarter update in May 2023, giving investors and regulators an early view of live reporting under the new standard. The group’s new financial targets for 2023–2025 were also due to be based on IFRS 17 and presented at its Investor Day on 16 November, aligning external performance guidance with the post-transition reporting framework.

The next phase for regulatory reporting under IFRS 17 will depend on how supervisors interpret early-year disclosures, parallel run outcomes and the observed dispersion of impacts across the $13 trillion of assets now reporting under the new standard. Further refinements to reporting templates or expectations may follow once regulators have a full cycle of IFRS 17 data to assess.

--- Sources: https://www.bankofengland.co.uk/prudential-regulation https://www.wolterskluwer.com/en/news/ifrs-17 https://www.zurich.com/media/news-releases/2022/2022-0927-01