Tip of the Month: Is there a potential impact of IFRS 17 on cell captives?

20 years of development and the new insurance standard (IFRS 17 Insurance Contracts) is finally here, effective for periods beginning on or after 1 January 2023.

While the definition of an insurance contract has not changed much from IFRS 4 Insurance Contracts,  the consequences of qualifying as an insurance contract have changed. IFRS 17 applies to an issuer of an insurance contract and not to a policyholder.​

The focus now is on the type of contract and the transfer of significant insurance risk.

One of the areas to look out for are entities who hold an investment in a captive cell.  These are either first or third party cells. 

The significance of insurance risk is assessed on a contract by contract basis. Insurance risk can be significant even if there is a minimal probability of significant losses for a portfolio or group of contracts.

Depending on the shareholders’ agreement a cell, the cell owner is responsible for the financial solvency of the cell. If there is a shortage or loss in the cell, the cell owner steps in to recapitalise the cell to make good on the losses. 

This is considered to be a significant transfer of insurance risk from the cell insurer to the cell owner. The cell owner is therefore considered to be holding an “in-substance reinsurance contract”.  The transfer of significant insurance risk falls into the scope of IFRS 17 and the entity would need to consider the impact of IFRS 17 on their cell captive arrangement.


Karolina Martin, IFRS Director

24 April 2023