The evolution of financial reporting in the Indonesian insurance industry continues with the introduction of PSAK 118 (IFRS 18), effective from 1 January 2027 as a new standard on financial statement presentation and disclosure. Unlike PSAK 117, which focuses on insurance contract measurement, PSAK 118 emphasizes how financial performance is presented and communicated to users of financial statements. The standard does not change recognition or measurement but revises the structure of the statement of profit or loss by classifying income and expenses into operating, investing, and financing categories, and introducing Management-Defined Performance Measures (MPMs). These changes enhance transparency, comparability, and consistency in reporting, particularly in the presentation of key performance indicators such as operating profit and insurance service results. The impact is more significant for insurers due to the complexity of interconnected underwriting and investment activities. PSAK 118 also strengthens disclosure through greater aggregation and disaggregation of information and increased focus on non-IFRS performance measures. Overall, its implementation requires adjustments in systems, governance, and communication, while also presenting an opportunity to improve reporting quality and credibility.
The Indonesian insurance industry is entering the next phase of financial reporting transformation. Following the implementation of PSAK 117, which fundamentally changed the measurement of insurance contracts, insurers now face a new reporting challenge under PSAK 118 Presentation and Disclosure in Financial Statements, Indonesia’s adoption of IFRS 18 Presentation and Disclosure in Financial Statements. While PSAK 117 transformed how insurers measure performance, PSAK 118 will transform how that performance is presented, disclosed and communicated.
Although PSAK 118 does not alter the recognition or measurement of insurance contracts, it introduces significant changes to the presentation and disclosure of financial performance.
PSAK 118 requires a more structured statement of profit or loss and greater disaggregation of information, thereby enhancing transparency and comparability for users of financial statements. PSAK 118 also introduces Management-Defined Performance Measures (MPMs) into audited financial statements for the first time, accompanied by expanded disclosure requirements. This development is expected to enhance the credibility and consistency of key performance indicators and may influence how insurers communicate their financial results and performance to investors, regulators, analysts, rating agencies, and other stakeholders.
Entities that begin preparing early will be better positioned to manage implementation risks, maintain reporting quality, and strengthen stakeholder confidence.
The Next Reporting Transformation for Insurers
The Indonesian insurance industry has spent several years navigating one of its most significant accounting transformations with the implementation of PSAK 117. Finance, actuarial, risk, and technology teams have redesigned processes, systems, controls, and reporting frameworks to align with the new model. As these efforts stabilize, focus is shifting toward PSAK 118.
PSAK 118 aims to enhance transparency, comparability, and consistency in financial reporting. However, for insurers, its impact goes beyond the format of financial statements. The standard can influence how capital markets and other stakeholders interpret financial performance. Insurers should therefore approach PSAK 118 not just as a compliance requirement, but as an opportunity to improve transparency, strengthen communication, and build confidence in reported results.
A New Era of Financial Statements Presentation
PSAK 118 establishes a more structured framework for presenting financial performance. The statement of profit or loss now includes subtotals such as operating profit, with income and expenses classified into operating, investing, and financing categories, based on the entity’s main activities and the nature of its assets and liabilities. Operating expenses are presented directly on the face for greater transparency.
Management-Defined Performance Measures (MPMs) are now disclosed in the financial statements and subject to audit. While they capture some non-GAAP measures, additional disclosures may require extra effort and governance.
The standard also enhances aggregation and disaggregation of information, clarifying the roles of primary statements and notes, guiding presentation of material information, and introducing new disclosures for operating expenses presented by function and items labeled as “other.”
Although these requirements apply broadly, insurers face a greater impact due to the interconnected nature of underwriting, investment, and capital management activities.
Why Insurers May Be More Affected Than Other Industries
Unlike most industries, insurers generate earnings from both underwriting and investment activities. Consequently, determining whether certain investment-related income and expenses should be classified as operating, investing, or financing often requires judgment and can materially affect reported operating profit. The introduction of mandatory profit or loss subtotals may alter how investors evaluate core profitability, earnings quality, operational efficiency, sustainability, and performance relative to peers. In practice, stakeholders are likely to focus more on Operating Profit as a key performance measure alongside traditional insurance-specific indicators. For many insurers, the challenge will not be in applying the accounting itself, but in presenting performance in a way that remains meaningful, transparent, and comparable for stakeholders.
The Interaction Between PSAK 117 and PSAK 118
A key consideration for insurers is the interaction between PSAK 117 and PSAK 118. Under
PSAK 117, investors have become familiar with performance measures such as Insurance Revenue, Insurance Service Expenses, Reinsurance Result, Insurance Service Result, and Insurance Finance Income or Expenses. Among these, many analysts view Insurance Service Result as the most important indicator of underwriting performance, as it reflects the profitability generated from insurance activities.
PSAK 118, however, introduces mandatory profit or loss subtotals, including Operating Profit and Profit Before Financing and Income Taxes. This shift from measurement under PSAK 117
to presentation under PSAK 118 may require insurers to reconsider how financial performance is communicated to the market.
Summary of interaction between PSAK 117 and PSAK 118 is as follows:
| PSAK 117 | PSAK 118 |
| Focus on Measurement | Focus on Presentation |
| Insurance Service Results | Operating Profit |
| Recognition and Measurement | Presentation and Disclosure |
| Actuarial and Accounting Impact | Reporting and Communication Impact |
Life Insurers and General Insurers: Different Considerations
Although PSAK 118 applies across the insurance sector, implementation challenges differ by business type. Life insurance companies often manage substantial investment portfolios to support long-duration liabilities. Key areas of focus include the classification of investment income and expenses, presentation of insurance finance results, spread-based earnings analysis, unit-linked and investment-linked products, and communication of investment performance. Because investment activities are integral to the business model, the classification of investment-related income and expenses is likely to be a significant area of judgment.
General insurance companies may face greater emphasis on underwriting profitability, combined ratio performance, claims trends, reinsurance effectiveness, and catastrophe-related impacts. Enhanced disaggregation requirements under PSAK 118 may also increase scrutiny of expense allocation and claims-related disclosures. Across both sectors, insurers will need to clearly explain the relationship between underwriting performance and overall profitability under the new reporting framework.
Increased Scrutiny of Management-Defined Performance Measures (“MPMs”)
Many insurers supplement PSAK measures with alternative performance indicators, such as Operating Earnings, Core Earnings, Underlying Profit, Normalized Earnings, Adjusted Net Income, and Embedded Value-related measures. PSAK 118 introduces specific disclosure requirements for Management-Defined Performance Measures (MPMs). Insurers must clearly explain the purpose of each measure, how it is calculated, how it reconciles to the most directly comparable PSAK measure, and any changes in methodology from prior periods. For entities that actively engage with investors and analysts, governance over non-GAAP measures may become as critical as governance over statutory financial reporting.
Illustrative MPMs Disclosure: Operating Earnings
Management uses Operating Earnings to evaluate underlying business performance by excluding items considered non-recurring or significantly affected by short-term market volatility.
Illustrative Reconciliation
| Rp billion | Amount |
| Profit Before Tax | xxx |
| Add: Market Value Volatility on Investments | xxx |
| Add: One-off Restructuring Costs | xxx |
| Less: Gain on Disposal of Investment Property | xxx |
| Operating Earnings (MPMs) | xxx |
Illustrative Narrative Disclosure
Management believes Operating Earnings provides useful supplemental information to investors because it reflects the underlying performance of the Company’s insurance and investment operations by excluding items that may not be representative of recurring business activities.
Enhanced Transparency Through Disaggregation
PSAK 118 strengthens requirements for the aggregation and disaggregation of financial information. As a result, insurers may need to provide greater transparency around claims and benefits, acquisition costs, reinsurance activities, and investment activities. The objective is not simply to present more data, but to provide information that helps users understand the underlying drivers of performance.
Illustrative Financial Statements
The following simplified illustration demonstrates how financial performance is presented under PSAK 118:
Illustrative Statement of Profit or Loss
Potential OJK and Regulatory Considerations
Although PSAK 118 primarily affects financial statements presentation, insurers should consider the broader regulatory implications.
Management should evaluate whether:
- Internal management reporting remains aligned with regulatory reporting
- Existing KPIs reported to regulators remain appropriate
- Additional reconciliations may be required between statutory and regulatory reporting
- Reporting processes remain efficient following implementation
Early engagement with regulators, auditors, and industry stakeholders may help minimize implementation challenges and avoid unintended inconsistencies.
Retrospective Application
PSAK 118 is effective for annual reporting periods beginning on or after 1 January 2027, with early adoption permitted. PSAK 118 is expected to be applied retrospectively. Consequently, insurers will generally need to present comparative information using the new presentation framework.
This requires entities to prepare the information required by the new standard as early as 1 January 2026, due to the need to present changes in comparative periods during the first year of adopting the new standard. For instance, entities are expected to present the effects of adopting PSAK 118 as of 31 December 2027, 31 December 2026 and 1 January 2026 in their 2027 financial statements.
Transition Priorities for Insurers
- Financial statement presentation: Management should review the classification of income and expenses across operating, investing, and financing categories, determine Insurance Service Result and Operating Profit, and assess the interaction between PSAK 117 and PSAK 118 reporting measures.
- Management-Defined Performance Measures (MPMs): Management should identify existing performance measures, evaluate disclosure implications, and establish robust governance over MPMs.
- Systems and Data: Management should ensure system readiness to produce new subtotals, generate comparative information, and support additional disclosures.
- Investor Communication: Clear strategies are needed to explain Insurance Service Result, Operating Profit, performance bridges, and the implications of new disclosure requirements to investors and analysts.
- Governance and controls: Accounting policies and financial reporting processes should be reviewed, with strengthened governance over MPMs and overall financial reporting.
Experience from prior accounting transformations shows that reporting changes often demand more effort than initially anticipated.
Looking Ahead
The implementation of PSAK 117 transformed how insurers measure insurance contracts. PSAK 118 marks the next stage in financial reporting evolution, reshaping how performance is presented and communicated. While it does not alter the economics of insurance contracts, it can significantly affect how investors, regulators, analysts, and rating agencies interpret financial performance. Insurers that begin preparation early will be better positioned to manage implementation risks, maintain reporting quality, and strengthen stakeholder confidence. The most successful insurers will approach PSAK 118 not simply as an accounting change, but as a strategic opportunity to enhance transparency, improve stakeholder communication, and build greater confidence in reported performance.
