IFRS reserves are referred to as insurance liabilities, and they reflect the present value of the future benefits and expenses, plus the risk margin, plus the contractual service margin, which hasn't yet been released to earnings, less the present value of future premiums.

The insurance liabilities are updated each year to reflect current cash flow estimates and discount rates.

Although the inception discount rate is locked in for the contractual service margin, which is consistent with how the discount rate is locked in for the net premium calculation in US GAAP.

Each year, the risk margin and contractual service margin is gradually released to the income statement through a mechanical unwind as coverage is provided to the policyholder.

This release of CSM and risk margin is included as insurance revenue in the insurance service result, which is the IFRS equivalent of gross profit for an insurance company.

It's worth reminding at this point that an IFRS income statement, therefore, does not include premiums or a benefits expense on the face of the income statement, since insurance revenues reflect the profit and risk released from insurance liabilities.

Each year, investment income from the return generated on the investments balance is also included as income in earnings, whilst the interest accretion on the insurance liability is included as an expense in earnings.

Note that both these items are included in the investment results section of the income statement. This reflects a difference versus US GAAP, where all revenue items and expense items are separately aggregated. A further difference versus US GAAP is that under IFRS, the interest accretion is included as a separate component of the investment result rather than be included as part of the claims and benefits expense.

The final thing to note is in relation to how reserves are updated to reflect current discount rates. If discount rates increase or decrease, this will impact the value of insurance liabilities, resulting in a gain or loss as the liabilities decrease or increase.

Under IFRS, insurance companies have a choice as to how to recognize this gain or loss. They can either include this within the investment result in the income statement, or they can choose to recognize this in OCI. OCI is separate to the income statement.

This choice allows insurance companies to reduce earnings volatility.

But how does this work? Let's assume that the insurance company has a lot of investments recorded at fair value in the balance sheet.

Then a fall in interest rates will give rise to a large increase in the value of those investments, which will result in a gain in the income statement within investment income.

At the same time, the decrease in interest rates will also give rise to a large increase in the value of reserves, which will result in a loss. If this loss is also recorded in the investment results, it helps to offset the gain and reduce earnings volatility.

Alternatively, now let's assume that the insurance company has a lot of investments recorded at amortized cost in the balance sheet.

The value of these investments won't be affected by a fall in interest rates in the short term, so it will have no impact on the investment result.

However, a fall in interest rates will increase the value of reserves, which will result in a loss.

If this loss is recorded in OCI rather than in the investment result, it avoids creating earnings volatility.

So the choice over presentation is likely to be a reflection of the type of investments that the insurance company has, along with how those investments are accounted for.