Impairment Calculator
for Insurance

IAS 36 impairment testing for Insurance

Insurance entities have undergone a major reporting shift with IFRS 17's implementation, but IAS 36 remains fully relevant for non-financial assets. Goodwill from acquiring insurance books or broking businesses, customer relationship intangibles (broker networks, renewal rights), IT platforms (policy administration systems, claims management software), and office infrastructure all sit within IAS 36's scope. IFRS 17 handles the insurance contracts themselves, much as IFRS 9 handles financial instruments for banks. What's left under IAS 36 is the operational infrastructure of the insurance business. For a mid-market insurer or insurance intermediary that has grown through acquisition, goodwill and intangible assets can represent 20% to 40% of total assets.

IAS 36 testing for insurance entities requires careful separation of what IFRS 17 covers and what IAS 36 covers. The cash flows in a VIU model should reflect the entity's profit from servicing insurance contracts (the contractual service margin release, variable fee income, and investment returns on insurance float), not the insurance liabilities themselves. This is conceptually similar to banking, where the lending book's credit risk sits under IFRS 9 while the bank's infrastructure sits under IAS 36. The discount rate for an insurance CGU should reflect the specific risks of the business unit. A life insurance division with long-tail liabilities and stable premium income carries different risk from a property catastrophe reinsurer with volatile claims patterns. European mid-market insurers typically apply pre-tax WACCs between 8.5% and 12.0%. The forecast period for insurance CGUs can justifiably extend beyond five years when the business has long-duration contracts: a life insurer with a back book running off over 20 years might use a longer explicit forecast to capture the run-off profile.

Regulators have paid close attention to insurance goodwill impairment. EIOPA's peer review on supervisory practices found that several national regulators were not adequately challenging insurers' impairment testing. The PRA in the UK has noted that some insurers use discount rates that don't reflect current market conditions, instead relying on rates set at the time of acquisition. IAS 36.55 requires a current rate, not a historical one. Another common finding is that insurers performing annual goodwill tests rely on embedded value calculations that were prepared for a different purpose (regulatory solvency) and may not align with IAS 36's specific requirements. Embedded value uses different discount rates, different projection assumptions, and includes items (such as the value of future new business) that IAS 36.44 arguably excludes from VIU.

When using this calculator for insurance CGUs, input the carrying amount of operational assets and allocated goodwill. Exclude insurance contract assets and liabilities (these sit under IFRS 17). For the discount rate, use a pre-tax rate reflecting the CGU's risk. Life insurance CGUs typically sit at the lower end of the range (8.5% to 10.0%) while general insurance and reinsurance CGUs with more volatile earnings sit higher (10.0% to 12.0%). Terminal growth should reflect long-term premium growth in the entity's market. Consider extending the forecast period to seven or ten years for life insurance CGUs with long-tail business, as the five-year default may not capture the full value of in-force business running off over decades.