IFRS 17 Sri Lanka life insurance is set to undergo a significant transformation as the country prepares to implement the global accounting standard from the third and fourth quarters of 2026, introducing greater transparency and shifting the industry’s focus toward long-term value creation.
IFRS 17 Sri Lanka life insurance to drive protection-led growth and investor confidence
The new International Financial Reporting Standard (IFRS 17) is expected to fundamentally change how insurers report their financial performance by replacing the long-standing SLFRS 4 framework. Industry leaders say the transition will provide investors, analysts and policyholders with a clearer picture of the true profitability of insurance businesses while encouraging insurers to prioritize protection-based products over traditional savings-oriented offerings.
The changes were discussed during CT Smith Securities’ investor forum, Navigating Growth and Value in Life Insurance, held at Hilton Colombo Residences on June 25. The panel featured Softlogic Life Managing Director Ifthikar Ahmed, Union Assurance CEO Senath Jayatilake and HNB Assurance Executive Director and CEO Lasitha Wimalaratne, with the discussion moderated by CT Smith Securities Vice President – Research Kugaprasath Thilagaratnam.
Under the current SLFRS 4 accounting framework, insurers report Gross Written Premium (GWP) as their primary revenue indicator. However, industry executives noted that GWP often fails to reflect the actual economic value generated by insurance policies, making it difficult for investors to accurately assess company performance.
Jayatilake explained that the existing reporting model can even penalize insurers experiencing strong business growth, as rapid expansion creates a “new business strain” that suppresses reported profits despite healthy long-term fundamentals.
The adoption of IFRS 17 Sri Lanka life insurance will replace Gross Written Premium with Insurance Service Revenue, a metric based on the value created through insurance services rather than simply the premiums collected.
A key component of the new framework is the Contractual Service Margin, which represents the future profits embedded within insurance contracts. Instead of recognizing profits immediately, insurers will gradually release these earnings over the life of each policy as services are delivered.
Jayatilake described the Contractual Service Margin as a “vault” containing future profits, enabling investors to better evaluate an insurer’s long-term earnings potential. However, he noted that operational efficiency, expense management and policy persistency will remain crucial in determining how much of that value ultimately reaches shareholders.
Ahmed compared the Contractual Service Margin to the net interest margin used in the banking sector, explaining that insurers with a greater proportion of protection-based products are likely to generate stronger margins than those focused primarily on investment-linked products.
He also emphasized that insurers adopting IFRS 17 will need to make several important accounting decisions during implementation, many of which will have long-term strategic implications and cannot easily be reversed.
Although the industry had originally targeted January 2026 for implementation, insurance companies requested additional time to prepare for the complex transition. As a result, full financial reporting under the new standard is now expected to begin during the third and fourth quarters of 2026.
Industry leaders believe the accounting reforms will further accelerate the ongoing evolution of Sri Lanka’s life insurance industry toward protection-focused products.
Wimalaratne said insurers would increasingly prioritize health, critical illness and life protection products because IFRS 17 recognizes only the protection component of premiums as insurance revenue. He predicted that protection-based business would become an even larger share of the market over the next five to ten years.
Softlogic Life has already aligned its business strategy with this direction. Ahmed said at least half of every policy sold by the company now includes a protection rider such as health or critical illness coverage. He also highlighted the company’s recently introduced “Health for Life” rider, which provides lifetime health coverage rather than ending benefits at ages such as 70 or 80.
The discussion also highlighted the need for longer-term investment opportunities to support evolving insurance products. Jayatilake noted that as Sri Lankans live longer, retirement products must generate sustainable returns over much longer periods, requiring insurers to invest beyond the current eight to ten-year fixed-income horizon.
He called for broader long-term investment instruments and an expanded range of admissible assets to help insurers meet future obligations while remaining competitive against traditional savings and investment products.
Panelists also believe the enhanced transparency introduced by IFRS 17 Sri Lanka life insurance will improve comparability with regional insurers and strengthen Sri Lanka’s appeal to foreign investors. As financial reporting becomes more standardized, performance comparisons are expected to shift away from Gross Written Premium toward metrics such as Contractual Service Margin and long-term value creation.
On industry consolidation, executives suggested significant mergers among life insurers remain unlikely given the healthy performance of the sector’s existing players. However, they acknowledged that the general insurance market could experience greater consolidation as companies adapt to evolving regulatory and market conditions.