Let's take a look at a set of IFRS life insurance financial statements, and we'll start with the balance sheet.

In general, the IFRS balance sheet is much more aggregated than a US GAAP balance sheet, so we can see fewer line items here.

Now, similar to US GAAP, the largest item in assets is the investment balance, and that's the case here.

Note that for life insurance companies which offer unit-linked policies, the investment balance will include the value of investments held within unit trusts for the unit-linked policies.

These amounts are either separately disclosed on the face of the balance sheet or in the footnotes to the accounts.

However, the only other material balance in the assets is the cash held for operational purposes.

There aren't any other asset line items.

This is quite different to US GAAP, and is because any assets associated with insurance contracts, such as premiums receivable or deferred acquisition costs, well, they're included net within insurance liabilities.

So this significantly reduces the number of asset line items under IFRS.

Now let's move on to liabilities and equity.

The first liability item is insurance contract liabilities.

These are the reserves for all the insurance policies with significant or moderate insurance risk. That covers traditional life insurance, annuities, and participating life policies with some guaranteed benefits. The next liability item is investment contract liabilities. These are policies that have very low levels of insurance risk, which are primarily focused on offering investment services to policyholders. So for many European insurers, this would include the account values for unit-linked policies, and also for participating policies with minimal guaranteed benefits.

The next item is net asset value attributable to unitholders.

But what on earth does this mean? Well, let's assume this company has 350,000 of investments held within unit trusts for unit-linked policies. Those investments are, of course, recorded at market value and included within the investment balance of 500,000. Now, the investment contract liability, which reflects the current account value of unit-linked policies, is 320,000.

This means that there is a net asset value of 30,000 which is attributable to the unitholders. That's the market value of the investments and the balance sheet date, less the amount allocated to policyholders.

The net asset value belongs to the unitholders but isn't reflected in the investment contract liabilities, so it's included as a separate liability in the balance sheet of the insurance company.

The next two items are borrowings and equity.

Although these are standard items, they are very important for insurance companies, as long-dated borrowings and equity are covered by European regulatory capital requirements, and that means that there is a minimum level of equity required relative to the amount of insurance reserves.

Now let's take a look at the income statement.

The first thing to notice here is that the headings are very different to those used under US GAAP. The IFRS income statement is carved up into three sections, the insurance section, the investment section, and then everything else.

Whereas the US GAAP income statement lists all income items, then all expense items separately.

The second thing to notice in the insurance section is that the first line is insurance revenue rather than premiums.

This insurance revenue reflects the profits released on insurance contracts. That's the contractual service margin and also the risk margin.

Whilst insurance expenses include non-contractual operating expenses incurred in relation to insurance business, so that would include staff business and acquisition costs.

Once the insurance expenses are deducted from the insurance revenue, the net figure is the insurance service result, and that's effectively the underwriting profit.

The next section is the investment section, and the first line here is the investment return on the investments balance.

We then subtract from that the finance expense on the insurance contracts, which is the interest accretion on the insurance contract liabilities.

We then deduct from that a change in the investment contracts liabilities, which the amount credited to the policyholder accounts for unit-linked policies and similar.

So the investment return includes the return generated on assets where the investment risk is borne by the policyholder, and then this line item shows the allocation of those returns to the policyholder.

The investment result is then added to the insurance result to give what is effectively the operating profit for the insurance company.

The next item is the asset management fees generated on fund management and investment contracts.

We then deduct other finance costs, that's the interest expense on their borrowings, to give profit before tax.

Finally, we deduct the tax expense from the profit before tax to give net income, which is the profit for the shareholders.