Thursday, September 4th, 2025
By Michael Winkler and Sunil Kansal
Applying the time value of money under IFRS 17 is one of the most technically demanding areas of modern insurance accounting.
Earlier insurance accounting standards applied discounting inconsistently. In many jurisdictions, particularly in non-life insurance, insurers often avoided discounting claims reserves. This practice created a conservative buffer within reported liabilities but reduced comparability across financial statements.
IFRS 17 fundamentally changes this approach. The standard introduces a consistent framework requiring insurers to discount all long-term insurance cash flows. This ensures that liabilities reflect the time value of money and the economic characteristics of insurance contracts.
Under IFRS 17, discount rates must reflect the financial risks associated with the insurance liabilities. At the same time, insurers must separately recognise a Risk Adjustment to capture non-financial risks such as underwriting uncertainty and claims variability.
The challenge becomes more complex in markets where reliable financial market data is limited. Without deep or liquid markets, determining credible discount curves becomes difficult. Insurers must therefore rely on estimation techniques, proxy market data, or internal modelling approaches.
Consequently, developing robust discounting methodologies has become one of the most important technical tasks for actuaries, finance teams, and risk managers implementing IFRS 17.
Read the full article:
View the publication at Fundación MAPFRE
For advisory support on IFRS 17 implementation, discount rate methodologies, or insurance valuation frameworks,
contact Shasat Consulting.
