IFRS 4 - Insurance Contracts

Q: Is IFRS 4 still applicable?

No. It was fully replaced by IFRS 17 on 1 January 2023. However, IFRS 4 may still be referenced for legacy reporting.

Q: Was IFRS 4 applicable to all types of insurance?

Yes. It applied to all types of insurance i.e. life insurance, non-life insurance, and reinsurance contracts.

IFRS 4 - Insurance Contracts: Overview, History, Provisions, and FAQs

IFRS Guide>>

July 3, 2025

The International Accounting Standards Board (IASB) issued IFRS 4 – Insurance Contracts in March 2004 as an interim standard.

It was the first IFRS to address the accounting for insurance contracts, providing a foundational framework that remained in place until IFRS 17 took effect in January 2023.

This article breaks down IFRS 4 in detail, including its history, purpose, key provisions, and common FAQs.

If you’re working in insurance, accounting, or financial reporting, this guide will help you understand the role IFRS 4 played in shaping current practices for insurance contracts.

So, let’s begin!!

Key Takeaways

IFRS 4 was issued as a temporary standard for Accounting Insurance Contracts.
It allowed existing local practices with added disclosure and Liability Adequacy requirements.
It defined insurance risk and introduced impairment testing for reinsurance assets.
IFRS 4 was replaced by IFRS 17 in 2023 due to lack of consistency and comparability.
It is still relevant for understanding historical reporting and the evolution of insurance accounting.

What is IFRS 4?

IFRS 4 – Insurance Contracts was an interim standard issued in 2004 as part of the IASB’s Phase I Insurance Project to guide how insurers account for insurance contracts.

IFRS 4 allowed the continued use of existing local practices while introducing basic disclosure requirements and liability adequacy tests.

IFRS 4 was superseded by IFRS 17 on 1 January 2023.

IFRS 17 offers a more consistent, transparent framework for reporting insurance contracts, replacing the temporary approach under IFRS 4.

The standard aimed to improve transparency and comparability in the treatment of insurance-related financial activities – particularly around future cash flow uncertainty.

Why Was IFRS 4 Developed?

The IASB developed IFRS 4 because, prior to 2004:

No IFRS standard specifically addressed insurance contracts.
Accounting practices differed significantly across countries and industries.

IFRS 4 was introduced to provide a temporary, harmonized approach to insurance accounting while work on a more comprehensive framework (IFRS 17) was underway.

Key Objectives of IFRS 4 - Insurance Contracts

The main goals of IFRS 4 were to:

Guide insurers in identifying and explaining how insurance contracts affect financial statements.
Improve the relevance and reliability of insurance-related disclosures.
Allow for continued use of existing accounting policies with certain limitations.

Brief History of IFRS 4

Event	Detail
Issued	March 2004
Effective Date	1 January 2005
Superseded by	IFRS 17 (Effective from 1 January 2023)

Although it was designed as a temporary measure, IFRS 4 – Insurance Contracts remained in use for nearly two decades.

Applicability of IFRS 4

IFRS 4 applies to:

All insurance contracts issued by an entity, including reinsurance contracts.

IFRS 4 does not apply to:

Financial instruments within the scope of IFRS 9.
Product warranties, employer benefits, or contingent considerations in mergers.
Accounting practices by policyholders.

N/B: IFRS 4 focused only on the insurer’s side of the transaction and excluded contracts already covered under other IFRS standards.

Key Provisions of IFRS 4 - Insurance Contracts

1. Continued Use of Existing Policies

Entities could keep using existing insurance accounting policies – with certain limitations.

2. Prohibited Practices

IFRS 4 banned:

Liability measurements excluding future cash flows.
Hidden reserves and excessive prudence margins.

3. Definition of Insurance Risk

Introduced the concept of insurance risk to distinguish insurance contracts from financial instruments.

4. Liability Adequacy Test (LAT)

Insurers were required to test whether existing liabilities were adequate. If not, additional liabilities were recorded.

5. Impairment of Reinsurance Assets

Introduced rules for testing and recording impairments on reinsurance assets.

6. Mandatory Disclosures

Required insurers to disclose the nature, timing, and uncertainty of future cash flows from insurance contracts.

Why Was IFRS 4 Replaced?

Despite its strengths, IFRS 4 – Insurance Contracts had several key limitations:

Allowed too much flexibility across jurisdictions.
Didn’t prescribe a consistent measurement framework.
Failed to ensure full comparability between insurers.

To address these issues, IFRS 17 was introduced as a more robust and uniform standard. It replaced IFRS 4 effective January 2023.

FAQs About IFRS 4 - Insurance Contracts

1. Why was IFRS 4 introduced as a temporary standard?

To fill the regulatory gap and provide consistency in insurance accounting while IFRS 17 was being developed.

2. Is IFRS 4 still applicable?

No. It was fully replaced by IFRS 17 on 1 January 2023.
However, IFRS 4 may still be referenced for legacy reporting.

3. Did IFRS 4 apply to investment contracts?

Only if the contract transferred significant insurance risk. Otherwise, such contracts were covered under IFRS 9 or IAS 39.

4. Was IFRS 4 applicable to all types of insurance?

Yes. It applied to all types of insurance i.e. life insurance, non-life insurance, and reinsurance contracts.

5. What was the liability adequacy test?

A required test to ensure that insurance liabilities were sufficient to meet future obligations. If not, insurers had to recognize additional liabilities.

Conclusion

IFRS 4 – Insurance Contracts was a critical interim solution in the evolution of insurance accounting.

It introduced standardized practices, improved transparency, and prepared the industry for the comprehensive changes brought about by IFRS 17.

Although no longer in effect, IFRS 4 continues to influence how insurance companies assess and disclose the risks and obligations tied to insurance contracts.