IFRS 17 at Year Three: Why Insurers Still Struggle With KPIs

From comparing LDTI implementation pain points in the US with IFRS 17 adoption challenges globally, the pattern is consistent: accounting standard transitions take three to five years before KPI frameworks stabilize, and insurers in year three are still in the turbulent middle phase. Three years after the International Financial Reporting Standard for Insurance Contracts took effect on January 1, 2023, insurers across Europe, Canada, Asia-Pacific, and dozens of other jurisdictions are still wrestling with fundamental questions about which performance metrics remain meaningful under the new accounting regime.

The frustration is palpable. As one senior Canadian insurance executive told Canadian Underwriter in 2024: “Our standard, which is supposed to make us all comparable, has made us less comparable than we’ve ever been in the industry.” That observation, made after just one year of live reporting, has only grown sharper with time. KPMG’s April 2026 analysis of 44 insurers’ 2025 annual financial statements found that while most non-life insurers now report an IFRS 17-based combined ratio, the calculation methodology varies so significantly across companies that direct peer comparison remains unreliable.

This article examines the persistent gap between IFRS 17’s theoretical framework and the practical challenge of translating traditional insurance KPIs into metrics that investors, analysts, regulators, and boards can actually use. The problem is not that IFRS 17 lacks data; it is that the data does not map cleanly onto the mental models that decades of insurance financial analysis have built.

The KPI Translation Problem: Where Traditional Metrics Break Down

For decades, insurance financial analysis revolved around a small set of well-understood metrics. Property and casualty analysts watched combined ratios, loss ratios, and expense ratios. Life insurance analysts tracked embedded value, new business value, and return on embedded value. Investors across all lines relied on return on equity and book value growth. These metrics were imperfect, but they were universally understood, consistently calculated, and directly comparable across companies.

IFRS 17 disrupted this framework in several fundamental ways. The standard replaced premium-based revenue recognition with a service-based model. Under the old IFRS 4 regime, revenue equaled total premiums received. IFRS 17 instead recognizes “insurance revenue” when performance obligations are fulfilled, not when payment is collected. For a P&C insurer writing annual policies, the practical difference is modest. For a life insurer with multi-decade contracts, the change is profound, because large upfront premiums are no longer booked as revenue at inception.

This single change ripples through every traditional KPI. The combined ratio, historically calculated as (incurred losses + expenses) divided by earned premiums, now requires a new denominator: insurance revenue. But IFRS 17 merges benefits, claims, and expenses into a single line called “insurance service expenses,” making it difficult to isolate the loss ratio from the expense ratio in the way that analysts and actuaries have done for generations. The numerator has changed along with the denominator.

The Discounting Complication

IFRS 17 requires insurance contract liabilities to be measured at present value, using discount rates that reflect the time value of money and the characteristics of the cash flows. For short-tail P&C business, discounting has a modest effect. For long-tail casualty lines or life insurance contracts, the effect is substantial, and it introduces a new source of period-to-period volatility that did not exist under undiscounted reserve presentations.

The practical consequence for the combined ratio is stark. Under IFRS 17, some insurers report a discounted combined ratio, others report an undiscounted version, and still others report both. KPMG’s 2025 annual reporting analysis confirmed that non-life insurers’ combined ratio calculations differ significantly, with variations in which components are included, whether discounting effects flow through the ratio, and how acquisition costs are allocated. What was once the industry’s simplest performance benchmark has become a metric that requires extensive footnote reading before any peer comparison is attempted.

The Loss Component Puzzle

IFRS 17 introduces the concept of a “loss component” for groups of contracts that are onerous at initial recognition or become onerous subsequently. This loss component has no direct analog in pre-IFRS 17 reporting and creates interpretive challenges for analysts. The Actuary Magazine reported in April 2026 that for Canadian insurers in 2024, the loss component represented just 0% to 1% of total insurance liabilities for most direct writers, but reached approximately 5% for reinsurers. This disparity reflects the different risk profiles across business types, but also creates a new dimension of financial statement analysis that investors are still learning to interpret.

Economic Versus Accounting Volatility: The Hidden Disconnect

One of the most consequential features of IFRS 17, and one that continues to confuse both preparers and users of financial statements, is the disconnect between economic reality and accounting presentation. The Footnotes Analyst published a detailed study in September 2025 identifying four distinct scenarios under IFRS 17 where economic and accounting volatility diverge.

In the first scenario, genuine economic volatility is deferred through adjustments to the Contractual Service Margin. When assumptions about future cash flows change for profitable contracts, IFRS 17 absorbs the change into the CSM rather than flowing it immediately through profit or loss. This creates smoother earnings patterns, but it also means that the income statement does not always reflect the period in which the economic event occurred.

In the second scenario, economic volatility is recognized immediately, either in profit and loss or through Other Comprehensive Income (OCI). Changes in discount rates, for instance, can flow through OCI if the insurer elects this policy choice, separating market-driven revaluation effects from underwriting performance. This is conceptually clean but creates a bifurcated picture of profitability that requires reading both the income statement and the statement of comprehensive income to understand total return.

In the third scenario, certain forms of economic volatility simply do not appear in the financial statements at all due to cost-based accounting for some elements. And in the fourth, perhaps most problematic, scenario: accounting results can be volatile even when the underlying economics are stable, because measurement mechanics create period-to-period fluctuations that reflect model recalibration rather than genuine changes in risk.

For reserving actuaries and financial analysts, this four-way divergence creates a fundamental interpretive challenge. A smooth earnings pattern under IFRS 17 does not necessarily indicate stable underlying performance; it may simply reflect CSM absorption of volatility. Conversely, earnings volatility does not necessarily indicate deteriorating fundamentals; it may be an artifact of the accounting model’s mechanics.

The Contractual Service Margin as a New Profit Metric

If IFRS 17 took away the simplicity of traditional KPIs, it offered something new in return: the Contractual Service Margin. The CSM represents unearned profit that an insurer expects to realize as it delivers insurance coverage over time. As deferred underwriting profit, the CSM is arguably IFRS 17’s most consequential innovation, and it has emerged as the focal point for a new generation of insurance performance metrics.

The strengths of the CSM as a KPI are significant. It makes the stock of future profitability visible on the balance sheet for the first time. It provides a forward-looking indicator of earnings capacity that was absent from legacy accounting frameworks. And CSM growth over time offers a meaningful signal about whether an insurer is writing profitable business and growing its deferred profit base.

CSM-Based Metrics Gaining Traction

Several CSM-derived KPIs are now entering the analytical mainstream. The ratio of new business CSM to total starting CSM measures how much deferred profit an insurer is adding relative to its existing stock, serving as a proxy for profitable growth. EY’s global survey of 91 insurers found growing consensus that new business CSM is displacing traditional Value of New Business (VNB) for life insurers, particularly as MCEV-based calculations give way to mandatory IFRS 17 disclosures.

In Canada, the MSA Research Life & Health KPI Committee developed the Net Insurance Service Ratio (NISR) as an alternative to the traditional combined ratio. Published by The Actuary Magazine in April 2026, the NISR compares net insurance service expenses to insurance revenue. For Canadian insurers in 2024, the Big Three reported an NISR of 85%, non-Big Three insurers reported 89%, and reinsurers reported 99%, reflecting their characteristically thin margins. This metric avoids the combined ratio’s decomposition problems by operating at the insurance service result level.

KPMG’s analysis of 2025 annual statements found that 14 major insurers had begun reporting “comprehensive equity,” an aggregate of shareholders’ equity and the net CSM, as a measure of total insurance business value. This hybrid metric attempts to bridge the gap between IFRS equity (which excludes deferred profit) and the economic value of the in-force book.

CSM Limitations That Persist

The CSM has real limitations as a performance measure, however. Because it absorbs changes in assumptions for profitable contracts, it can mask deterioration until contracts become onerous and the loss component triggers immediate recognition. The CSM is tracked at the group level, which increases system and data demands. The SOA’s March 2026 analysis of CSM management noted that there is “no unique solution” to the question of how to invest assets backing the CSM, because the optimal approach depends on the insurer’s risk appetite, reporting objectives, and stakeholder expectations.

There is also a conceptual limitation. The CSM reflects expected future profit, but it does not directly convey current-period underwriting performance in the way a combined ratio does. An insurer with a large, mature CSM from legacy business can report strong earnings even if current-year underwriting is weak, because CSM release from prior vintages dominates the insurance service result. This creates a lag effect that can obscure deteriorating fundamentals for several reporting periods.

Regional Divergence: Three Markets, Three Approaches

Three years into IFRS 17, regional differences in implementation maturity and KPI development are substantial. Rather than converging on a single set of global metrics, different markets have developed distinct approaches that reflect their regulatory environments, industry structures, and stakeholder expectations.

Europe: Disclosure Maturity With Persistent Variation

European insurers were the earliest and most thoroughly prepared adopters of IFRS 17, supported by EIOPA oversight and a regulatory culture that had already adapted to principles-based reporting through Solvency II. The UK’s Financial Reporting Council published its thematic review of IFRS 17 disclosures in September 2024, finding high overall compliance but noting that accounting policies needed to be more granular, sensitivities more meaningful, and alternative performance measures more clearly reconciled to IFRS measures.

European insurers have largely settled on operating profit and return on equity as group-level KPIs, per EY’s global survey. The insurance service result has become the standard measure of underwriting profitability for both life and non-life segments. Yet the calculation of that result still varies, particularly regarding the treatment of insurance finance expenses and the allocation of acquisition costs across measurement models.

ESMA published recommendations for improving 2024 annual financial reports and helping investors navigate the new disclosures. A recurring theme across European regulatory reviews is that many insurers initially focused on “getting the numbers right” while disclosure quality fell short of expectations, a pattern that is only gradually improving with each reporting cycle.

Canada: Leading the Standardization Effort

Canada presents perhaps the most instructive case study in KPI harmonization. The Insurance Bureau of Canada (IBC) published a discussion paper in June 2025 proposing eight standardized KPIs specifically designed for IFRS 17 reporting. Authored by Tina Liu, Hubert Scarlett, and Christina Song, the paper proposed the Comprehensive Combined Ratio (CCR) as the best proxy for the combined ratio formerly calculated under IFRS 4, and the Insurance Service Ratio (ISR) for provincial and business-line analysis.

All eight IBC metrics use insurance revenue as a consistent denominator, which addresses one of the fundamental comparability problems: different insurers using different denominators when calculating what they label as a “combined ratio.” The paper explicitly acknowledged that “consistency in financial reporting is essential for informed decision-making, accountability and promoting long-term trust,” and that without standardized KPIs, there was “a risk of confusion, inconsistency and misinterpretation.”

Canada’s advantage is structural. Because the country mandates IFRS for all publicly accountable enterprises and uses IFRS 17 for statutory reporting, Canadian insurers can produce KPIs from standardized reporting templates without the dual-basis reconciliation required in markets where statutory and IFRS reporting diverge. The MSA Research committee’s development of the NISR and related metrics (risk adjustment percentages of 4% to 5% for direct writers versus 27% for reinsurers; loss component exposure of 0% to 1% for most insurers) represents the most granular publicly available IFRS 17 KPI benchmarking data anywhere in the world.

Asia-Pacific: Varied Maturity, Active Adaptation

The Asia-Pacific region shows the widest range of IFRS 17 implementation maturity. The Actuaries Institute of Australia published its post-implementation survey in February 2026, covering 22 organizations in Australia and New Zealand. The survey, conducted by Dataly Actuarial and Deloitte under the Life Insurance Practice Committee’s oversight, found ongoing demand for worked examples and technical guidance, particularly around CSM, loss component, RLRC, and IACF topics tailored to the AU/NZ market.

EY’s global survey noted that Asian insurers generally lag European counterparts in KPI preparedness, with the biggest increase in survey responses coming from mid-sized insurers in Europe and Asia still working through interpretation challenges. South Korean and Taiwanese insurers continue to recalibrate product strategies in response to IFRS 17’s economics. India, which has targeted April 2027 for mandatory adoption of Ind AS 117, is still in the pre-implementation phase and can benefit from the lessons of earlier adopters but faces the challenge of adapting metrics developed for mature IFRS 17 markets to its own regulatory and market context.

Japan presents a unique case. Japanese insurers report under J-GAAP domestically and prepare IFRS financial statements for international investors, creating a dual-reporting burden that complicates KPI harmonization. The Tokyo market has adapted by developing supplementary metrics that bridge J-GAAP and IFRS 17 presentations, though this adds complexity rather than reducing it.

Impact on Reserving Actuaries

IFRS 17 has materially changed how actuarial judgment flows into financial statements, and three years of practice have made the specific impacts clearer.

Assumption Changes Are More Visible

Under legacy standards, changes in actuarial assumptions typically flowed through reserves with limited disclosure of individual assumption effects. IFRS 17 requires explicit disclosure of how changes in estimates of future cash flows affect the CSM, the loss component, and profit or loss. This means that actuarial judgment around mortality, morbidity, lapse, and expense assumptions is now directly traceable in published financial statements. The IBIMA study on IFRS 17 implementation challenges, published in 2026, identified the annual cohort requirement, the treatment of onerous contracts, and the two methods used for discount rate calculation as the areas requiring the most significant actuarial judgment.

Risk Adjustment Requires New Calibration Skills

The explicit risk adjustment for non-financial risk under IFRS 17 has no direct analog in many legacy frameworks. The Actuary Magazine reported that for Canadian direct writers in 2024, the risk adjustment represented approximately 4% to 5% of insurance liabilities, while for reinsurers it reached 27%. This wide range reflects differences in portfolio composition and risk tolerance, but it also means that the risk adjustment has become a significant source of cross-company variation. Actuaries are responsible for calibrating this measure, and the diversity of approaches across markets means that professional guidance, from bodies such as the Institute and Faculty of Actuaries, the Canadian Institute of Actuaries, and ASTIN, remains critically important.

Data Infrastructure Demands Have Grown

The granularity required by IFRS 17 (tracking CSM, loss component, and risk adjustment at the group-of-contracts level; maintaining annual cohorts; performing quarterly unlock procedures) has imposed significant new data infrastructure demands on actuarial teams. The IBIMA study noted that outdated systems, poor data quality, and shortage of actuarial talent continue to derail adoption. The Actuaries Institute of Australia survey echoed this, with multiple respondents requesting worked examples tailored to specific local market conditions, suggesting that even after three years, the technical complexity of IFRS 17 calculations remains a genuine operational challenge.

Parallels With LDTI in the United States

US-based actuaries watching the IFRS 17 KPI struggle from across the Atlantic should find the pattern familiar. ASU 2018-12 (Long-Duration Targeted Improvements, or LDTI) became effective for public companies in January 2023, the same month IFRS 17 went live globally. After twelve quarters of LDTI reporting, the US life insurance industry is experiencing its own version of the KPI translation problem.

Market Risk Benefit (MRB) remeasurement swings under LDTI routinely move life insurer net income by 10% to 25% in a given quarter. The quarterly assumption unlocking process creates earnings volatility patterns that did not exist under the prior standard. And the separation of operating and non-operating results varies across preparers, making earnings comparisons difficult in ways that mirror IFRS 17’s combined ratio divergence.

The parallels extend beyond volatility mechanics. Both IFRS 17 and LDTI experienced a multi-year implementation phase followed by a stabilization period in which the industry collectively learns how to interpret and communicate the new numbers. Both standards initially focused preparers’ energy on “getting the numbers right,” with disclosure quality and KPI standardization treated as secondary priorities that only mature after several reporting cycles. And both transitions demonstrate that accounting standard changes affect not just what gets reported but how the industry thinks about performance, risk, and value creation.

The convergence gaps between the two standards are also significant. LDTI retains earned premiums as a revenue concept and does not introduce the CSM or the explicit risk adjustment. This means that US insurers operating globally face a particularly challenging translation exercise: explaining to investors why the same underlying business produces fundamentally different metrics under IFRS 17 and US GAAP. For multinational groups like Manulife, Sun Life, and Prudential Financial, this dual-standard reporting reality will persist for the foreseeable future.

Where the Industry Goes From Here

Three years of IFRS 17 reporting have produced a substantial body of evidence about what works, what does not, and where the remaining gaps lie. Several developments in 2026 point toward gradual, if uneven, convergence.

The IBC’s eight-KPI framework represents the most concrete effort to standardize metrics for a national market. If other jurisdictions develop similar guidance, a consensus set of IFRS 17 KPIs could emerge within two to three years. EY’s survey of 91 respondents found growing consensus on operating profit and return on equity as group-level metrics, with new business CSM displacing traditional embedded value measures for life insurers. This suggests that convergence is underway at the metric category level, even if precise calculation methodologies remain diverse.

The IASB has not yet initiated a formal post-implementation review of IFRS 17 (which typically occurs five years after a standard’s effective date), but the Board is collecting implementation feedback through its ongoing work program. The addition of IFRS 18 (Presentation and Disclosure in Financial Statements), effective January 2027, will introduce another layer of change by requiring insurers to categorize results into operating, investing, and financing activities. For companies still calibrating IFRS 17 KPIs, the overlay of IFRS 18’s presentation requirements will create a second wave of metric recalibration before the first wave has fully settled.

The SOA’s March 2026 analysis on CSM management highlighted a practical truth that applies broadly: there is no single correct approach. Different insurers will legitimately make different choices about discount rate methodology, risk adjustment calibration, CSM investment strategy, and KPI construction, reflecting their distinct business models, risk appetites, and stakeholder bases. The goal is not uniformity but sufficient consistency that informed comparison is possible.

Why This Matters for Actuaries

The IFRS 17 KPI translation problem is not a niche accounting issue. It has direct implications for actuarial practice across multiple dimensions.

Reserving and valuation. Actuaries responsible for IFRS 17 calculations must understand not just how to produce the numbers but how those numbers will be interpreted by investors, boards, and regulators. The gap between accounting outputs and user expectations creates communication risk that falls squarely on the actuarial function.

Product design. IFRS 17’s economics are actively reshaping product design decisions, particularly for long-duration contracts. Products that generate favorable CSM profiles at inception will be preferred over economically equivalent products that create onerous contract recognition. This creates a new dimension of product development work that requires close collaboration between pricing actuaries and financial reporting teams.

Professional standards. As IFRS 17 disclosures mature, the expectations for actuarial opinions and certifications will evolve. The diversity of approaches to risk adjustment calibration, discount rate selection, and CSM allocation means that actuarial professional standards bodies will face increasing pressure to provide more specific guidance on these topics.

Career opportunities. The persistent complexity of IFRS 17 implementation, combined with the shortage of actuaries with deep IFRS 17 expertise, continues to drive strong demand for qualified professionals. The Actuaries Institute’s survey noted that respondents identified shortage of actuarial talent as a continuing barrier to mature implementation. For actuaries willing to develop dual expertise in US GAAP (LDTI) and IFRS 17 frameworks, the career premium is substantial.

Accounting standard transitions of this magnitude do not resolve in three years. From tracking both the LDTI and IFRS 17 adoptions, the evidence suggests that genuine KPI stabilization takes approximately five years: one year for initial compliance, one to two years for disclosure maturation, and one to two more years for analytical frameworks and investor expectations to align. IFRS 17 is in year three. The turbulence is not a sign of failure; it is the expected pattern. The question is whether the industry, its regulators, and its standard-setters will accelerate the convergence or let it unfold on its own timeline.