Insurers' investments under IFRS 9

An insurer's balance sheet is two large portfolios that move with interest rates: investments and insurance liabilities. IFRS 9 and IFRS 17 each offer choices, and the combination decides whether rate movements hit profit, equity or nothing. This guide works through the main combinations, explains the IFRS 17 OCI option, and covers equities and credit losses.

By Awais Jameel, Chartered Accountant. Reviewed by Muhammad Bilal, Chartered Accountant. 3 minute read.

Short answer

Insurers' investments are measured under IFRS 9, and the classification choices are made with the insurance liabilities in mind. Bonds held to back liabilities are often at fair value through other comprehensive income (FVOCI), matched by IFRS 17's option to present the effect of discount rate changes on liabilities in other comprehensive income. Assets backing unit-linked business are at fair value through profit or loss, like the liabilities that follow them. Getting the combination wrong creates volatility that has nothing to do with performance: in this guide's example, a 1% rise in interest rates moves profit by 48 under one combination and by nothing under another.

At a glance

Bonds backing liabilities
Often FVOCI
Unit-linked assets
FVTPL
Liabilities
OCI option for rate effects
Equities
FVTPL or FVOCI without recycling
Credit losses
ECL on debt at FVOCI and amortised cost
Goal
Avoid accounting mismatches
Insurers' investments under IFRS 9Bonds backing liabilities: Often FVOCI; Unit-linked assets: FVTPL; Liabilities: OCI option for rate effects; Equities: FVTPL or FVOCI without recycling; Credit losses: ECL on debt at FVOCI and amortised cost; Goal: Avoid accounting mismatches.KEY FACTS AT A GLANCEInsurers' investments under IFRS 9Bonds backing liabilitiesOften FVOCIUnit-linked assetsFVTPLLiabilitiesOCI option for rateeffectsEquitiesFVTPL or FVOCI withoutrecyclingCredit lossesECL on debt at FVOCI andamortised costGoalAvoid accountingmismatchesTax BakersInsurers' investments under IFRS 9Bonds backing liabilities: Often FVOCI; Unit-linked assets: FVTPL; Liabilities: OCI option for rate effects; Equities: FVTPL or FVOCI without recycling; Credit losses: ECL on debt at FVOCI and amortised cost; Goal: Avoid accounting mismatches.KEY FACTS AT A GLANCEInsurers' investments under IFRS 9Bonds backing liabilitiesOften FVOCIUnit-linked assetsFVTPLLiabilitiesOCI option for rate effectsEquitiesFVTPL or FVOCI without recyclingCredit lossesECL on debt at FVOCI and amortised costGoalAvoid accounting mismatchesTax Bakers
Key facts at a glance, as set out in this guide.

Insurers' investments: a 1% rise in rates

An insurer holds bonds of 1,000 backing liabilities of a similar duration. Interest rates rise by 1%: the bonds fall in value by 50, and the liabilities, discounted at current rates, fall by 48.

Where a 1% rate rise landsWhere a 1% rate rise landsProfitOCIFVOCI bonds,OCI optionNil-2FVOCI bonds,liabilities in P&L+48-50FVTPL bonds,liabilities in P&L-2NilAmortised cost,liabilities in P&L+48Nil
Matching choices keep rate moves out of profit.
BondsLiabilities: rate effectProfit or lossOther comprehensive income
FVOCIOCI optionNil-50 + 48 = -2
FVOCIAll in profit or loss+48-50
FVTPLAll in profit or loss-2Nil
Amortised costAll in profit or loss+48Nil

The first and third combinations reflect the economics: the insurer is hedged, and only the small net difference shows. The second and fourth create an accounting mismatch: swings in profit, or in profit and equity in opposite directions, from rate moves the insurer is protected against.

What is the IFRS 17 OCI option?

For each portfolio, an insurer may choose to disaggregate insurance finance income or expense, presenting a systematic amount in profit or loss, typically based on the discount rates locked in at inception, and the rest, the effect of changes in current rates, in other comprehensive income. Paired with FVOCI bonds, interest income on the bonds and the liability's finance expense both use historical rates in profit, and rate movements go to OCI on both sides.

How are typical insurer assets classified?

  • Government and corporate bonds held to collect cash flows and sell when needed: usually FVOCI.
  • Assets backing unit-linked and other VFA business: FVTPL, matching liabilities that move with their fair value.
  • Equities: FVTPL, or FVOCI by irrevocable election, in which case gains are never recycled to profit, which many insurers dislike.
  • Funds and structured notes that fail the SPPI test: FVTPL.
  • Mortgage loans held to collect: amortised cost.

See IFRS 9 classification.

What about property and own shares held for policyholders?

Owner-occupied property and an insurer's own shares that are held as underlying items for direct participating contracts may be measured at fair value, under exceptions in IAS 16 and IAS 32, so they move in step with the liabilities that depend on them.

Do insurers recognise expected credit losses?

Yes, on debt instruments at amortised cost and FVOCI. For FVOCI bonds, the allowance does not reduce the carrying amount, which stays at fair value; the ECL charge goes to profit or loss with the offset in OCI. Most insurer bond portfolios are investment grade and in stage 1, but downgrades of individual issuers can move bonds to stage 2.

How did insurers move to IFRS 9?

Many insurers deferred IFRS 9 under a temporary exemption and adopted it together with IFRS 17 from 1 January 2023. A classification overlay allowed them to present comparative information for financial assets as if IFRS 9 had applied, so the restated year was not distorted by assets still measured under IAS 39.

Why does this matter for analysts?

An insurer's reported equity and profit can move very differently from its economic position if assets and liabilities are measured inconsistently. Disclosures of the policy choices, and of the sensitivity of profit and equity to rate changes, help readers see through it. See the variable fee approach, the general measurement model and insurance accounting under IFRS 17.

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Questions people ask

How do insurers classify investments under IFRS 9?

Bonds backing liabilities are often at FVOCI, assets backing unit-linked business at FVTPL, equities at FVTPL or FVOCI by election, and loans held to collect at amortised cost.

What is the IFRS 17 OCI option?

A choice to present part of insurance finance income or expense, the effect of changes in current discount rates, in other comprehensive income.

Why do insurers pair FVOCI bonds with the OCI option?

So that interest rate movements on both assets and liabilities go to OCI, keeping profit free of accounting mismatches.

Do insurers recognise expected credit losses on bonds?

Yes, on debt at amortised cost and FVOCI; for FVOCI bonds the allowance is recognised with the offset in OCI.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 9 Financial Instruments
  2. IFRS Foundation: IFRS 17 Insurance Contracts

Rules and fees change. If you are reading this long after October 7, 2026, confirm the figures with the source before you rely on them.

IFRS 9Classification and measurement under IFRS 9: business model and SPPIInsuranceThe variable fee approachInsuranceInsurance accounting: IFRS 17 in practice

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This guide is general information. It is not tax or legal advice for your situation.