Insurance Accounting Advisory Quarterly

IFRS 18 Presentation and Disclosure in Financial Statements (“IFRS 18”) is effective from 1 January 2027 and applies retrospectively, with comparatives restated.

It introduces a more structured and standardised approach to presenting financial performance, enhancing transparency and comparability across entities without changing the underlying measurement of insurance contracts.

For insurers, IFRS 18 is not about measurement and more about how performance is presented and explained. Our Insurance team shares the practical considerations and insights below.

Niall Naughton

Partner, Head of Insurance

KPMG in Ireland

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What’s changing

IFRS 18 introduces three key changes:

A more structured income statement;
The introduction of management performance measures (“MPMs”); and
Enhanced requirements for aggregation and disaggregation of information.

Take a closer look at each aspect below.

IFRS 18 introduces a more structured income statement designed to enhance comparability, transparency and decision‑usefulness. It requires all income and expenses to be classified into five defined categories: operating, investing, financing, income taxes and discontinued operations. This classification is driven by an entity’s main business activities.

For insurers, issuing insurance contracts is typically a main business activity. This means that IFRS 17 amounts, such as insurance revenue and insurance service expenses, are generally presented within the operating category.

Further, insurance finance income and expenses are explicitly excluded from the financing category and should be included in the operating category, reinforcing a distinction between core performance and financing effects.

In addition, IFRS 18 introduces the concept of specified main business activities, under which certain income and expenses that would otherwise be classified as investing or financing are instead included within operating.

While insurers are included as an example of entities that might invest in assets as a main business activity, IFRS 18 requires an evidence-based assessment as this is a matter of fact and not merely an assertion.

Relevant indicators include whether subtotals similar to gross profit are used to explain performance externally or assess and monitor operating performance internally. Additionally, IFRS 8 Operating Segments (“IFRS 8”) should be considered in determining and supporting the specified main business activity assessment.

A further key feature is the introduction of mandatory subtotals, notably operating profit or loss and profit before financing and income tax. These defined measures provide consistent anchor points for users and are expected to reshape how insurers present and explain performance, requiring closer alignment between external reporting and internal management views of performance.

Under IFRS 18, MPMs introduce a more disciplined and transparent framework for specific metrics by bringing selected non‑GAAP measures into the audited financial statements.

MPMs are defined as subtotals of income and expenses used in public communications outside of the financial statements to communicate management’s view of financial performance of the entity as a whole.

MPMs must now be disclosed in a single note with clear explanations and descriptions as well as a reconciliation to the most directly comparable IFRS subtotal. This significantly increases scrutiny over commonly used metrics, while also strengthening their credibility through audit oversight.

The scope of MPMs is deliberately narrow. This means that certain KPIs such as ratios may fall outside the definition and continue to be disclosed separately, although the numerator or denominator forming part of the ratio may be considered as an MPM. As a result, insurers may need to rationalise their use of non‑GAAP measures and ensure greater consistency in KPI definitions.

From an implementation perspective, insurers may need to establish robust frameworks to identify, define, reconcile and document MPMs. This is likely to require closer coordination across teams, while driving stronger alignment between external reporting and internal performance management.

IFRS 18 introduces enhanced principles for aggregation and disaggregation, reinforcing a clearer distinction between information presented in the primary financial statements and that disclosed in the notes.

The standard requires income and expenses to be aggregated based on shared characteristics and disaggregated where items have dissimilar characteristics or where additional detail is needed to avoid obscuring material information. For insurers, this builds on IFRS 17 disclosures but is likely to increase the level of granular analysis presented.

In addition, IFRS 18 introduces more explicit requirements for the analysis of operating expenses and allowing presentation by nature, by function or on a mixed basis where this provides the most useful information.

Alongside this, there is greater discipline around labels and the use of “other”.

This is expected to improve transparency and provide a more structured and insightful view of performance.

Key practical considerations

IFRS 18 requires income and expenses from equity‑accounted associates and joint ventures to be presented in the investing category, even where such investments are integral to an insurer’s business model.

This may lead to a reduction in reported operating profit for some insurers. As a result, insurers may reconsider their accounting policy choices on transition, including whether to apply the fair value option (where permitted), with any changes applied retrospectively in accordance with IFRS requirements.

Insurers must adopt a structured presentation of operating expenses on the face of the income statement, using either a by nature, by function or mixed basis, with the approach selected based on what provides the most useful information.

Where expenses are presented by function or on a mixed basis, IFRS 18 requires additional disclosure of specified cost categories by nature (such as employee benefits, depreciation and impairment) in the notes.

This enhanced structure improves visibility over expenses but may require insurers to enhance data capturing, refine allocation methodologies and update systems and processes to support consistent and reliable reporting.

IFRS 18 requires foreign exchange gains or losses to be presented in the same category as the income or expense that gave rise to them.

While foreign exchange differences arising on insurance contracts will typically be included in the operating category, other items may give rise to foreign exchange differences which span across multiple categories, requiring careful judgement in classification.

In addition, IFRS 18 permits an accounting policy choice for foreign exchange differences on intragroup items, either to present them within the operating category or to apply a look‑through approach whereby the foreign exchange is classified in line with the category of the underlying transaction before elimination.

Overall, these requirements may reduce flexibility compared to current practice and require more granular tracking of foreign exchange exposures and outcomes, as well as robust policies to ensure consistent application and appropriate presentation across categories.

IFRS 18 requires gains or losses on derivatives used for risk management to be presented in the same category as the income or expenses arising from the risk being mitigated, applying this principle to both designated hedge relationships and non‑designated hedges. This enhances alignment between financial reporting and how insurers manage key risks.

Where derivatives are not used to manage risk, additional judgement is required to determine the classification of the derivative gains or losses.

In practice, insurers will need to establish clear frameworks to identify the underlying risks being mitigated and ensure that derivative gains and losses are consistently classified accordingly.

This is likely to require closer alignment across treasury, actuarial and finance functions, particularly where derivatives are used to manage complex or dynamic exposures. Further, insurers should consider enhancements to systems and reporting processes to support accurate tracking and mapping.

Core takeaways

IFRS 18 represents a shift in how insurers present and communicate financial performance. Accordingly, the changes may also have broader implications, including impacts on financial covenants, remuneration and investor communications.

Early engagement with key stakeholders will therefore be critical to manage the transition effectively and clearly explain movements in reported metrics.

Although IFRS 18 does not change how insurers measure performance, it will significantly reshape how that performance is presented and interpreted. This creates both a challenge and an opportunity to deliver clearer, more consistent performance narratives aligned with the economics of the business.