10 October 2025
IFRS 17 and Insurance Capital Standards
Insurance regulation meets insurance accounting standards
Thorsten Hein
Principal Product Marketing Manager for Risk, Fraud & Compliance Solutions, SAS
For the insurance industry, it’s a routine part of business to understand and comply with complex and diverse regulations and standards. Consider Solvency II in the European Union, and IFRS 17, which started in most regions of the world in 2023. Now, another regulation is about to change the face of the industry – the Insurance Capital Standard (ICS).
The purpose of ICS
ICS is a global regulatory framework developed by the International Association of Insurance Supervisors (IAIS). It aims at setting a common capital standard for Internationally Active Insurance Groups (IAIGs). The objectives of the ICS are to:
- Enhance global financial stability.
- Promote a level playing field.
- Protect policyholders.
- Support groupwide supervision.
- Improve risk sensitivity.
- Facilitate comparability and transparency.
- Ensure regulatory compatibility.
The Insurance Capital Standard became a fully implemented capital requirement for IAIGs starting in 2025, following a five-year monitoring phase that began in 2020. However, individual national regulators will determine how they integrate ICS into their local regulatory frameworks.
The aims of IFRS 17, ICS and Solvency II are to facilitate comparability and transparency from a regulatory and accounting perspective to external stakeholders. This contrasts with the divergent practices and measures that have characterized insurance reporting in the past.
Clear and transparent communications will help stakeholders navigate their way through the changes to regulatory and statutory reporting, increase confidence, and help mitigate any adverse impacts on share prices and ratings.
ICS and IFRS 17: Differences and similarities
For insurers trying to implement changes, it’s important to understand the similarities and differences between the frameworks of ICS and IFRS 17.
How are IFRS 17 and ICS different?
There are a number of differences between the two frameworks in terms of their purpose, risk sensitivity and the stakeholders who are involved.
- While ICS focuses on the solvency and financial stability of insurers by setting minimum capital requirements, IFRS focuses on financial reporting, ensuring consistent recognition and measurement of insurance liabilities. In the end, the implementation of ICS helps ensure that insurers hold enough capital to remain solvent, while IFRS 17 helps ensure that they report financial performance consistently.
- ICS establishes a minimum capital requirement to ensure insurers can absorb risks and continue their operations, while IFRS 17 establishes a standardized approach to how insurers report their profits, liabilities and risk exposure.
- Risk sensitivity is another area of difference. While ICS represents a risk-based capital framework that considers market, credit, insurance and operational risks, IFRS addresses the risk-adjusted valuation of insurance contract liabilities.
- Although we often refer to both frameworks as regulatory, only ICS is used by regulators to assess capital adequacy and systemic risk in the insurance sector. IFRS 17, on the other hand, is used by investors, analysts and stakeholders to compare insurers' financial health and their performance.
How are IFRS 17 and ICS similar?
Despite their different purposes, ICS and IFRS 17 share a few similarities, mainly in their objectives and approach to financial stability and transparency. While ICS focuses on capital adequacy and IFRS 17 focuses on financial reporting, both play a crucial role in ensuring financial stability, improving transparency and promoting consistency in the global insurance industry.
- ICS ensures that insurers hold sufficient capital while IFRS 17 ensures accurate financial reporting – but both frameworks affect insurers' balance sheets.
- Both frameworks require insurers to harmonize their ICS and IFRS 17 models to avoid inconsistencies, particularly regarding the valuation of liabilities and the application of discount rates.
- Both technology and data infrastructure must be continuously upgraded to handle the increased complexity of risk-based capital modeling and financial reporting these frameworks require insurers to manage.
- For both frameworks, clear communication with investors and regulators is crucial to explaining differences in reported solvency and profitability.
Tokio Marine Asia
Tokio Marine Asia used SAS® risk solutions to attain complete, consistent compliance for insurance contracts across eight regional markets. With its solution in place, TM Asia gained new efficiencies for managing, auditing and tracing all steps of the various IFRS 17 processes, including calculations, creation of accounting entries, reporting and more.
The synergy of a coordinated approach – and performance management changes
There is no requirement for consistency between regulatory and financial reporting, but there are significant overlaps in the measurement and disclosure requirements between the frameworks.
Given the similarities in the regulations, insurers with a deep understanding of the differences between ICS and IFRS 17 will be able to manage their businesses more effectively. Recognizing that the primary focus for ICS is capital adequacy rather than profitability management, many insurers may find they need assistance from their finance units. These finance teams can help explain the differences between the summarized margin approach from IFRS 17 and the profit-and-loss attribution under ICS.
Insurers will need to consider these challenges in adopting the regulations:
- Ensuring that business planning and forecasting models align with the new external reporting requirements and models for evaluating potential investments and acquisitions.
- Sufficiently informing and educating external stakeholders, including analysts.
- Delivering clear and transparent communications to help stakeholders navigate regulatory and statutory reporting while improving confidence and helping to mitigate any adverse impacts on share prices and ratings.
Minimizing the impact on systems and data
Both frameworks require insurers to invest in data management, quality and control. The content and structure of data captured from business units to support group statutory and regulatory reporting will change significantly. This requires major changes to group financial consolidation and reporting systems.
In addition, changes to the primary financial statements and disclosures will affect the general ledger and chart of accounts at the group and business unit levels.
The data requirements for IFRS 17 are similar to ICS and address many of the potential data gaps of IFRS 4 (e.g., data to model future premiums, participation benefits, options and guarantees). ICS also requires insurers to invest in data quality, control and management; however, there are differences in the details (e.g., the definition of a portfolio, contract boundaries and unbundling).
A key challenge will be to ensure that these different types of data are available and that systems can flexibly accommodate differences in the inputs to cash flows between the two frameworks.
Process and governance considerations
Under the IFRS 17 standard, accounting policies need to be standardized, and insurers need to be sure their compliance processes are auditable. IFRS 17 has raised the benchmarks in terms of governance and quality of documentation required to facilitate a smooth audit signoff. But insurers will also need to conform to the governance and control framework in ICS in terms of policies, assumptions and calculation methods.
Reporting and disclosure differences
When planning a common approach to reporting and regulatory disclosure standards for both sets of requirements, insurers will need to be cautious. Despite the similarities in IFRS 17 and ICS, there will be challenges in implementation.
You may need to consider different approaches when reporting your organization’s risk profile (i.e., IFRS 17 versus ICS). Detecting those differences to enable smooth implementation will require a mature understanding of the insurance business as well as accounting, reporting and disclosures.
The challenges ahead
Although the details (identification of contracts, approach to calculations, reported measures, responsibilities, etc.) are different, the basic requirements regarding data, structures, auditability and traceability of processes and supporting systems are similar. Both frameworks require the implementation of an integrated, end-to-end approach. Such an approach will also be needed to best support the reconciliation between external, management and regulatory reporting for both IFRS 17 and ICS.
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