Insurance Accounting Advisory Quarterly - October 2026

Amendments to FRS 102 are now effective for accounting periods commencing on or after 1 January 2026, with two of the most significant changes relating to revenue recognition and lease accounting. For many insurers applying UK and Irish GAAP, these amendments mark a significant change in financial reporting.

While insurance accounting itself may not be the primary focus of these amendments, insurers should not assume that their financial statements will be unaffected.

Revenue streams and contractual arrangements sitting outside insurance contract accounting may need to be reassessed, while the revised lease requirements could significantly change the accounting for leased property and other assets.

Insurers need to ask the question, “which of our arrangements fall within the revised Sections 20 and 23 of FRS 102 and what will change as a result?”

Niall Naughton

Partner, Head of Insurance

KPMG in Ireland

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Revenue: looking beyond insurance premiums

Revised Section 23 of FRS 102 introduces a five-step revenue recognition model based on the principles of IFRS 15 Revenue from Contracts with Customers, with simplifications for FRS 102 reporters. To apply the model, an entity needs to:

identify the contract with the customer;
identify the performance obligations in the contract;
determine the transaction price;
allocate the transaction price to those performance obligations; and
recognise revenue as each performance obligation is satisfied.

The revised model places greater emphasis on analysing the contractual relationship with customers and determining what has been promised, for how much and when that promise is satisfied.

Application of the revised model may result in a change in the timing and amount of revenue recognised by an entity.

For insurers, the key first step is establishing which, if any, income streams may be impacted by the changes. Insurers therefore need to identify ancillary and non-insurance revenue streams and determine whether they fall within Section 23.

For example, if the insurance entity has investment contracts, does it charge investment management, performance, origination or policy administration fees which need to be considered under Section 23? Does the insurance entity charge policy administration fees for amendments to policies or earn introductory commission from third parties for introducing business to them? Are there any other income streams that could be impacted?

Once an insurer has identified the revenue streams that fall within Section 23, it will need to assess the underlying contractual arrangements against the new five-step model.

This may require more detailed analysis than under existing FRS 102, particularly where a contract includes multiple services, variable or performance-related fees, upfront fees or arrangements that are modified over time.

Leases: bringing operating leases onto the balance sheet

For many insurers acting as lessees, the lease amendments may produce the most immediately visible financial statement change. While lessor accounting remains largely unchanged, revised Section 20 introduces a fundamentally different accounting model for most leases held by lessees.

Previous FRS 102 distinguished between operating and finance leases. Under revised Section 20, which is based on IFRS 16 Leases, that distinction has been removed for lessees and most leases* are recognised on the balance sheet through:

a right-of-use asset; and
a lease liability.

The changes will also have an impact on the profit and loss account. For operating leases brought onto the balance sheet, the previous operating lease expense in the profit and loss account will generally be replaced by depreciation of the right-of-use asset and interest on the lease liability, potentially affecting reported performance measures and other financial metrics.

For insurers, leased head offices, regional offices and other occupied property may be among the most obvious arrangements affected however entities should consider their complete contractual population to identify other arrangements that contain leases. In practice, this may not be a straightforward exercise.

Identifying the lease population is only the first stage. Insurers will also need to consider areas requiring judgement, including:

the appropriate lease term, including extension and termination options;
what lease payments to include in the liability;
the appropriate discount rate;
how to account for variable lease payments; and
how to account for modifications to existing leases

The impact extends beyond the accounting entries

The changes to Sections 20 and 23 should not be viewed solely as year-end financial reporting exercises.

For leases, recognition of additional assets and liabilities and the replacement of operating lease expense with depreciation and interest may affect reported performance measures and other financial metrics.

For revenue, changes to the timing or pattern of recognition may similarly affect reported results and require additional contract-level information.

Insurance entities should therefore consider the wider implications for:

accounting policies and financial statement disclosures;
management reporting, budgets and forecasts;
data requirements and systems;
processes and financial controls;
tax consequences;
key performance measures; and
regulatory reporting where statutory accounting information feeds into the regulatory reporting process.

Insurers should also assess whether the changes to statutory accounting under FRS 102 have any consequential implications for regulatory reporting, including Solvency II reporting where relevant.

The statutory accounting change should not automatically be assumed to result in an equivalent regulatory reporting impact.

What should insurers be doing now?

With the amendments effective for accounting periods beginning on or after 1 January 2026, insurers should now be progressing their implementation activities ahead of their first reporting period under the revised standard.

The key areas of focus for insurers should include:

Identifying relevant revenue streams outside insurance contract accounting that fall within Section 23.
Reviewing affected contracts, particularly those involving administration or investment services, upfront fees and variable consideration.
Identifying the complete lease population, including arrangements that may contain embedded leases. Entities should consider not only obvious property leases but contracts that may contain the right to use an identified asset.
Quantifying the transition impact on the balance sheet, profit and loss account and key financial metrics.
Updating accounting policies, processes and controls to support the revised requirements on an ongoing basis.

For insurers, the most significant effects of revised FRS 102 are likely to arise outside core insurance contract accounting, particularly in fee-generating activities and leasing arrangements.

Identifying these arrangements early will allow insurers to focus on the contracts requiring detailed assessment, quantify the financial reporting impact and ensure the necessary data, systems and controls are in place ahead of year-end reporting.

How KPMG can help

Implementing the revised requirements may require changes across accounting, data, systems, processes and controls. KPMG’s Accounting Advisory team, working alongside our systems transformation specialists, can support (re)insurers through implementation, from initial impact assessment through to embedding the revised requirements into financial reporting processes. This can include:

tailored training and workshops;
impact assessments to identify affected arrangements and reporting implications;
development and review of lease accounting models;
preparation and review of technical accounting papers and key judgements;
support with new and updated financial statement disclosures; and
support with the data, systems, process and control changes required for implementation and ongoing compliance.