No comparison: Industry’s Q2 results under IFRS 17

Federally regulated Canadian P&C insurers took in about $36.2 billion in 2023 Q2, establishing a new historical base upon which to compare future results under IFRS 17.

The figure comes under the new, IFRS 17 category “Insurance Revenue,” which loosely translates into gross earned premiums.

“Insurance Service Expenses,” which encompasses claims and underwriting expenses, totalled $29.8 billion in 2023 Q2.

Subtracting the industry expenses from the revenue, and adding net investment income (and factoring in other income and losses) gives you the Canadian P&C insurance industry’s net profit (after taxes) of roughly $3.8 billion in 2023 Q2.

The industry’s net investment income in 2023 Q2 was $2.4 billion, an increase from just $973 million in the first quarter of this year. Some in the industry have suggested insurers are starting to see the benefits of higher interest rates on their investment portfolios.

The purpose of IFRS 17 is to have “one accounting model for all insurance contracts in all IFRS jurisdictions,” as the International Financial Reporting Standards (IFRS) Foundation puts it.

“IFRS 17 provides consistent principles for all aspects of accounting for insurance contracts. It removes existing inconsistencies and enables investors, analysts, and others to meaningfully compare companies, contracts and industries.”

The new financial reporting standards apply to 450 insures globally with more than $13 trillion in assets in 2015.

There is no way to compare IFRS 17 financial results in 2023 Q2 to old key financial metrics in 2022 Q2, because none of the new financial categories are a one-to-one mapping of previous financial metrics.

“It’s a new language,” MSA Research president and CEO Joel Baker told Canadian Underwriter in June, when the industry’s first-quarter results were first released in the new IFRS 17 format.

Related: How Canadian P&C insurers look in 2023 Q1 (the IFRS 17 Remix)

Baker reports MSA Research has been working with the Insurance Bureau of Canada and individual insurers across Canada to establish a new set of financial key performance indicators (KPIs) for the industry.

Under the pre-IFRS 17 era, in 2022 Q2, the Canadian P&C insurance industry wrote direct premiums written of $26.5 billion. Direct claims incurred were roughly $10.6 billion.

The only way to compare the industry figures at the moment is on a quarter-by-quarter basis. IFRS 17 financial results started to be reported in 2023 Q1. Insurers tend to compare each quarter to the previous year’s quarter, because it more truly reflects the differences in business between quarters.

IFRS 17 figures also come with a caveat from the Office of the Superintendent of Financial Institutions (OSFI): “As a result of the transition to IFRS 17, some insurers may have requested filing extensions on data that OSFI publicly discloses,” OSFI states on its website. “Please note that some [financial institution] data may therefore be missing, and aggregate totals may be incomplete for the foreseeable future. OSFI will refresh its’ financial data web page once all filings have been received.”

Feature image courtesy of iStock.com/mdworschak