This section presents the overall profitability of insurers in 2023. It first looks at insurer profitability in 2023 based on return on equity (ROE) and then at the evolution of insurer shareholder equity.
Global Insurance Market Trends 2024
Abstract
Insurers recorded overall profitability in 2023. The return on equity (ROE), a key measure of corporate profitability, was positive in all jurisdictions for life insurers, 35 out of 37 jurisdictions (95%) for non-life insurers, and 20 out of 21 jurisdictions (95%) for composite insurers (Figure 5.1).1 This is an improvement compared to 2022 when fewer jurisdictions recorded a positive performance (OECD, 2023[8]).2 In 2022, the ROE was negative in several jurisdictions due to lower investment performance (OECD, 2023[8]) .
The return on equity was the strongest in Türkiye (driven by a general increase in prices) and several Latin American countries (e.g. Brazil, Guatemala, Peru). Insurers in only two jurisdictions recorded losses in 2023: non-life insurers in Argentina and Slovenia and composite insurers in Argentina.
In per cent
Note: The return on equity (ROE) was calculated by dividing net income in 2023 by the average shareholder equity in 2022 and 2023.
Source: OECD Global Insurance Statistics.
This profitability reflected the positive investment performance that insurers recorded in most jurisdictions in 2023. In a few jurisdictions (e.g. Colombia, Chinese Taipei and Türkiye), for non-life insurers, this positive investment performance offset underwriting losses. Where insurers managed to achieve underwriting gains for the business they wrote, these gains added to their investment gains.
Insurer shareholder equity increased in most jurisdictions in 2023.3 Figure 5.2 shows that shareholder equity increased in 27 out of 38 jurisdictions (71%) for life insurers, 37 out of 44 jurisdictions (84%) for non-life insurers and 22 out of 26 jurisdictions (85%) for composite insurers. The highest increase occurred in Argentina and Türkiye (driven by high inflation in these two countries) and Chinese Taipei.
In per cent
Note: Change in equity position is calculated as the change in shareholder equity divided by the level of shareholder equity of the previous year. For readability purposes, the chart does not show the change in shareholder equity of insurers in Argentina (138.2% for life insurers, 98.1% for non-life insurers and 117.1% for composite insurers), non-life insurers in Chinese Taipei (107.3%) and non-life insurers in Türkiye (119.7%).
1. Data for life insurers exclude the life insurance company that ended its activities in January 2023.
Source: OECD Global Insurance Statistics.
Positive insurer profitability in 2023 supported the growth of shareholder equity in 2023. For example, in Chinese Taipei, life insurers experienced an increase in shareholder equity in 2023 due to higher net investment income while, for the non-life sector, shareholder equity rose due to the raising of capital through new share issuance. In Peru, the relatively strong growth of shareholder equity was the result of an increase in net earnings. In Israel, insurer profitability increased earnings available for shareholders, thus contributing to shareholder equity. In Portugal, shareholder equity grew as a result of an improvement of revaluation reserves due to the positive impact of financial markets developments on investments valued at fair value through reserves. In the United States, shareholder equity in the life sector increased due to unrealised capital gains and a decrease in dividends. Stockholder dividends declined by 8% in 2023 (NAIC, 2024[24]).
Share issuance contributed to the evolution of shareholder equity in Chinese Taipei. Shareholder equity increased due to capital-raising in 2023. Life insurers have been issuing subordinated debt since 2023 in order to strengthen their capital position and prepare for new capital requirements (The Asian Business, 2024[25]).
The new accounting standard IFRS 17 for insurance contracts has had an impact on insurer shareholder equity. EIOPA (2024[26]) has found that IFRS 17 generally increased the value of the insurance liabilities (through the use of different discount rates and the introduction of new component of the insurance liabilities), thereby reducing retained earnings which are a component of shareholder equity. While insurers in many European countries started implemented in 2023, some others (e.g. in Latin America) plan to implement it in the coming years (Box 5.1).
In 2023, insurers in many countries started implementing IFRS 17, the accounting standard for insurance contracts. It replaces IFRS 4 and sets outs principles for the recognition, measurement, presentation and disclosure of insurance contracts.1 The objective of IFRS 17 is to enhance transparency and harmonise insurance accounting.
IFRS 17 has multiple implications on the accounting of insurance companies, such as: 2
A transition from a historical to a forward-looking approach to accounting: Insurers must measure liabilities at market value by calculating the present value of future cash flows. Insurers must reflect the time value of money for all cash flows (e.g. premiums, claims, expenses).
Profit recognition at the beginning of insurance contract: IFRS 17 requires the calculation of the expected profit on the contract and allows insurers to spread it over the lifetime of the contract (contractual service margin).
Enhanced disclosure of the sources of profit: IFRS 17 requires the separation of technical and financial income. It also makes a distinction between recognised and future profit in the financial statements of insurers.
Grouping of contracts: IFRS 17 requires insurers to group contracts together for accounting.
IFRS 17 has a more significant impact on life insurers than on non-life insurers.3
The implementation of IFRS 17 is at different stages around the world. While many European countries started implementing IFRS 17 in 2023, jurisdictions in other regions announced they would implement it in the coming years, such as Colombia (2027), Costa Rica (2026), Peru (2028) and Chinese Taipei (2026). Some countries implementing IFRS 17 may apply it only to some insurers. For example, in Poland, IFRS reporting was required only for group statements of publicly traded entities (just one group in Poland). Other insurance entities in Poland either did not need to implement these standards or did so internally, for consolidation purposes of their IFRS-reporting foreign parent entities.
Given the variability that IFRS 17 introduces on the liability side (especially of life insurers), some countries that introduced IFRS 17 decided to implement IFRS 9 at the same time (e.g. Lithuania). IFRS 9 concerns the valuation of financial instruments, specifying how entities should measure financial assets and financial liabilities.4 Although IFRS 9 has been in effect since 2018, insurers could use a temporary exemption and follow the previous standard that IFRS 9 replaced (IAS 39) until IFRS 17 became effective.5 The simultaneous implementation of IFRS 9 and 17 can reduce potential inconsistencies and differences in the valuation of assets and liabilities arising from insurance contracts.
Note:
2. This summary is based on the article: The IFRS 17 standard: overview, basic principles and objectives.
← 1. The return on equity (ROE) is a measure of profitability and income-generating capacity of insurers. It shows how much income insurance companies have generated with the capital that shareholders invested. It is calculated in this report as the net income of the year under review divided by the average of the shareholder equity of that year and the previous one, as reported on the balance sheet of insurers aggregated at the national level.
← 2. In 2022, the ROE was positive in 31 out of 37 reporting jurisdictions for life insurers, in 37 out of 43 for non-life insurers and in 20 out of 23 for composite insurers.
← 3. Changes in shareholder equity can arise for various reasons. Shareholder equity declines when insurers distribute cash dividends (as these dividends reduce retained capital earnings) and when insurers purchase their own outstanding shares (buybacks). By contrast, shareholder equity increases when insurers raise capital by issuing new shares. Changes in shareholder equity can also reflect unrecognised gains or losses that do not appear in the income statement but nonetheless may be important to understand the undertaking’s financial position. For instance, unrealised gains and losses on investments held to maturity within an investment portfolio do not appear in the income statement, yet they are reflected in changes to shareholder equity. An increase in shareholder equity can reflect a positive net income for insurers.