IFRS 18 Management Performance Measures in Energy, Banking & Insurance

Energy producers, banks and insurance companies operate in long cycles with deep capital intensity and high regulatory oversight. Their business models rely on metrics that have existed for decades outside IFRS statutory subtotals — from Replacement Cost Operating Profit (RCOP) in oil & gas, to Core PBFT in banking, to Underlying Operating Profit and Combined Operating Ratios in insurance.

For years, each sector reported a mix of statutory results and bespoke “adjusted” metrics designed to show the underlying economics of long-cycle industries.
Those adjusted metrics became central to how boards steered their organisations, how investors valued them, and how analysts interpreted performance.

But until IFRS 18, those metrics lived outside the discipline of audited financial statements.
They were explained — sometimes persuasively, sometimes selectively — but they were never required to be reconciled, justified, stabilised or governed.

Read more on IFRS 18 and Management Performance Measures (MPMs): The New Language of Performance, the cornerstone blog in this serie on IFRS 18.

IFRS 18 ends the era of “free-form” adjusted metrics

Under IFRS 18 – Presentation and Disclosure in Financial Statements, any subtotal of income and expenses not defined by IFRS but used publicly becomes a Management Performance Measure (MPM).
This triggers mandatory requirements under IFRS 18.117–125 and IFRS 18.B134–B141, including:

A full reconciliation to the nearest IFRS subtotal (Operating profit or PBFT).
A clear statement of why the metric is useful to users (IFRS 18.123(a)).
A description of how the metric is calculated (IFRS 18.123(b)).
Presentation of tax and NCI effects for each adjustment (IFRS 18.123(d), IFRS 18.B141).
Consistency across periods (IFRS 18.124–125).
A prohibition against filtering out normal variability (IFRS 18.BC354–BC358).

This is a fundamental shift for long-cycle sectors, because their traditional adjusted metrics are:

Economically justified (RCOP removes inventory effects; Combined Ratios remove investment volatility; Core PBFT removes trading noise).
But accounting-fragile (they rely on judgement, timing, and classification).

IFRS 18 forces these sectors to explain — not assume — the rationale behind those measures.
It moves adjusted metrics from investor decks and segment slides into audited performance communication.

Why this cornerstone matters

Energy, banking and insurance now face the same challenge: turning deeply embedded industry metrics into IFRS-governed performance indicators.

This blog explains six MPMs, each widely used in its respective sector:

ENERGY

Replacement Cost Operating Profit (RCOP)
Underlying Upstream Operating Profit (UUOP)

BANKING

Core Banking PBFT (CB-PBFT)
Adjusted Cost-Income Ratio (Adjusted CIR)

INSURANCE

Underlying Insurance Operating Result (UIOR)
Adjusted Combined Operating Ratio (Adjusted COR)

Each is reconstructed with:

definition,
IFRS 18 context,
reconciliation table (HTML),
explanation of each adjustment,
governance / audit committee implications,
and long-cycle business logic.

The result:
A cornerstone article that finally connects industry-specific economics with the disclosure architecture of IFRS 18.

2. Energy Sector – Replacement Cost Profit & Underlying Upstream Profit

The energy sector has relied on bespoke performance measures for decades.
Oil & gas companies—BP, Shell, Equinor, TotalEnergies—traditionally report:

Replacement Cost Operating Profit (RCOP)
Underlying Upstream Operating Profit (UUOP)
Clean Current Cost of Supplies (CCS)
Adjusted Operating Profit
Adjusted EBITDA
Underlying earnings

These are long-established industry metrics.
They explain the economics of extraction, refining, inventory cycles, commodity volatility, and decommissioning obligations far better than statutory Operating profit alone.

Under IFRS 18, these metrics become Management Performance Measures requiring:

precise definition,
line-by-line reconciliation,
clear articulation of usefulness,
consistent application,
and tax/NCI effects.

The discipline imposed by IFRS 18 transforms RCOP and UUOP from “investor convention” into auditable governance instruments.

2.1 MPM 1 — Replacement Cost Operating Profit (RCOP)

2.1.1 Definition and IFRS 18 Context

RCOP = Operating profit ± Inventory holding gains/losses (IAS 2) ± Derivative timing adjustments (IFRS 9) − Non-operational fair value impacts

RCOP removes the volatility caused by:

changes in crude oil and product inventory valuations,
derivative timing differences, and
accounting-driven fair-value movements unrelated to core operations.

Why this matters

Under IAS 2, inventories are measured at the lower of cost or NRV.
During sharp commodity swings, IFRS results can reflect:

inventory holding gains/losses,
remeasurement effects unrelated to physical operations,
timing mismatches between derivatives and physical flows.

RCOP provides the “physical reality” of energy performance.

Under IFRS 18, RCOP is a textbook MPM.
It modifies the IFRS subtotal (Operating profit) and is used externally by all major energy companies.

Therefore, per IFRS 18.123(a–d):

a reconciliation is mandatory;
usefulness must be explained;
methods must be disclosed;
tax and NCI effects must be shown.

2.1.2 RCOP Reconciliation Table

Reconciliation from Operating profit to Replacement Cost Operating Profit (RCOP)
Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Operating profit (IFRS subtotal)	14,200	–	–
Add/(subtract): Inventory holding gains/losses (IAS 2)	+2,150	–540	–20
Add/(subtract): Derivative timing impacts (IFRS 9)	–780	+195	–6
Add back: Non-operational FV impacts (IFRS 13)	+320	–80	0
Replacement Cost Operating Profit (RCOP)	15,890

Notes: Tax/NCI disclosures per IFRS 18 ¶123(d) and B141. Figures illustrative.

2.1.3 Explanation of Adjustments

Inventory holding gains/losses (IAS 2)

Price swings in crude oil create gains/losses purely from inventory valuation.
These are accounting movements — not operational performance.

Energy firms remove them to show the profitability of physical operations.
IFRS 18 requires explicit articulation of why this adjustment is useful (IFRS 18.123(a)).

Derivative timing mismatches (IFRS 9)

Derivatives used for hedging physical flows often settle in different periods.
IFRS 9 captures fair-value changes immediately → causing volatility.
RCOP adjusts to reflect the economic intent of hedging activities.

Fair-value impacts unrelated to operations

These include items that arise purely from valuation mechanics, not from physical production, refining or trading activities. RCOP removes them because they obscure operational margin and introduce volatility unrelated to supply-chain performance:

valuation of embedded derivatives
Some long-term energy contracts (e.g., LNG supply agreements, pipeline tariffs, take-or-pay contracts) contain pricing formulas that behave like derivatives — often linked to indices such as Henry Hub, TTF, Brent or inflation.
Under IFRS 9, these embedded derivatives are separated and measured at fair value through profit or loss, producing gains or losses that do not reflect how effectively the company extracted, transported or refined hydrocarbons.
RCOP strips these out to avoid misreading valuation swings as operational performance,
non-operational commodity positions
Energy companies often hold proprietary trading positions or residual hedge exposures that are not directly tied to physical supply obligations.
Examples include:
- proprietary power/gas trading books,
- speculative carbon or renewable certificates,
- liquidity-driven optimization positions.
  These positions generate IFRS 9 fair-value movements that are economically separate from upstream, midstream or downstream operations.
  RCOP removes them to ensure the measure reflects core operational profitability, not trading noise.
fair-value uplifts from IFRS 13
IFRS 13 requires measuring certain assets and liabilities — particularly commodity inventories, derivatives, and storage/transportation rights — at current market prices using Level 1–3 inputs.
During periods of extreme volatility (e.g., 2020 crude collapse, 2022 gas crisis), these fair-value uplifts can be large and rapid, even though no physical activity has changed.
Such valuation-driven effects do not represent extraction efficiency, refining margins, or marketing performance.
RCOP reverses these IFRS 13-driven shocks, giving users a view of underlying operational returns, not mark-to-market distortions.

RCOP removes them to highlight underlying supply chain performance.

2.1.4 Interpretation & Governance (Energy)

RCOP tells users:

how efficiently the company converted physical hydrocarbons into operating income,
independent of valuation noise.
It speaks to questions of sustainability, cash conversion, and long-term performance.

Governance responsibilities:

define precisely what counts as “inventory effects”;
tie derivative adjustments to hedging documentation;
avoid excluding recurring volatility (IFRS 18.BC354–BC358);
apply definitions consistently across entities and jurisdictions.

Audit committees must ensure classification neutrality and ICFR integration.

2.2 MPM 2 — Underlying Upstream Operating Profit (UUOP)

2.2.1 Definition and IFRS 18 Context

UUOP = Operating profit + Exploration write-offs + Decommissioning provision unwinds (IAS 37) ± Derivative settlement timing adjustments (IFRS 9) − Portfolio divestment impacts (non-recurring)

Upstream operations (exploration, development, production) produce volatile IFRS results due to:

exploration charges,
dry hole costs,
decommissioning revisions,
derivative timing gaps,
asset disposals,
price swings.

UUOP smooths non-core volatility to show the underlying profitability of producing assets.

Under IFRS 18, UUOP must be:

clearly defined,
reconciled line-by-line,
justified for usefulness,
accompanied by tax/NCI effects.

2.2.2 UUOP Reconciliation Table

Reconciliation from Operating profit to Underlying Upstream Operating Profit (UUOP)
Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Operating profit (IFRS subtotal)	9,880	–	–
Add back: Exploration write-offs (capital vs. dry hole)	+1,120	–280	–8
Add back: Decommissioning provision unwinds (IAS 37)	+560	–140	–3
Add/(subtract): Derivative settlement timing	–310	+78	–2
Subtract: Portfolio divestment gains	–740	+185	–5
Underlying Upstream Operating Profit (UUOP)	10,510

Notes: Tax/NCI disclosures per IFRS 18 ¶123(d) and B141. Figures illustrative.

2.2.3 Explanation of Adjustments

Exploration write-offs

Dry hole costs distort period results.
UUOP presents a consistent economic view by normalising exploration accounting differences.

Decommissioning provision unwinds

Under IAS 37, changes in estimates create large swings.
UUOP adds back unwinds to highlight operating performance before lifecycle restoration obligations.

Derivative settlement timing

As in RCOP, economic hedge effects appear in different periods than physical flows.
IFRS 18 forces companies to explain timing mismatches.

Portfolio divestment impacts

One-off asset sales inflate IFRS profit; UUOP removes them to present sustainable upstream economics.

2.2.4 Interpretation & Governance

UUOP reflects the core earning ability of producing fields, independent of:

exploration risk,
decommissioning timing,
derivative accounting,
M&A activity.

It aligns performance reporting with long-term asset cycles.

Audit committees must ensure:

neutrality (IFRS 18.BC354–BC358),
consistent classification,
documentation of exploration vs. development costs,
proper IAS 37 treatment,
traceability of derivative impacts.

UUOP becomes an auditable demonstration of upstream performance.

3. Banking Sector – Core PBFT & Adjusted Cost–Income Ratio

Banks communicate performance using metrics fundamentally different from industrial or service businesses.
Their economics revolve around interest margins, risk costs (ECL), trading volatility, regulatory levies, and operational resilience.
As a result, banking disclosures historically included “non-IFRS” measures such as:

Core PBFT (Profit Before Financing & Taxes)
Underlying Operating Profit
Adjusted Cost–Income Ratio (Adjusted CIR)
Underlying Return on Tangible Equity (ROTE)
Net Interest Income excluding FX and hyperinflation adjustments

Under IFRS 18, banks must now treat any such subtotal used externally as a Management Performance Measure (MPM).
This introduces discipline into an area where adjusted numbers were often loosely defined.

Banks face two challenges:

Trading volatility — IFRS 9 fair-value swings often obscure underlying lending/business performance.
Regulatory shocks — bank levies, deposit insurance costs, restructuring for Basel III/IV, and ring-fencing adjustments distort short-term operating profit.

IFRS 18 forces banks to explain, reconcile and justify their adjusted metrics rigorously.

3.1 MPM 3 — Core Banking PBFT (CB-PBFT)

3.1.1 Definition and IFRS 18 Context

Core PBFT = PBFT − Trading income volatility adjustment (IFRS 9 / IFRS 7) ± Net interest margin (NIM) normalization ± Loan-loss provision normalisation (ECL “through-the-cycle”) − One-off regulatory/compliance impacts

Core PBFT aims to isolate pure banking performance driven by:

net interest income (NII),
stable fee and commission income (F&C),
recurring operating expenses,
expected credit losses (ECL) based on actual risk indicators.

It strips out excessive IFRS 9 volatility without misrepresenting risk.

3.1.2 Why PBFT (not Operating profit)?

For banks, financing is a core business activity, not a separate performance category as in non-financial industries.
IFRS 18 recognises this explicitly: PBFT becomes the principal IFRS subtotal to connect banking MPMs to statutory accounts (IFRS 18.118 – 119).

Thus:

RCOP connected to Operating profit (energy)
Operating Profit ex SBC connected to Operating profit (software)
Core PBFT connects to PBFT (banks)

3.1.3 Core PBFT Reconciliation Table

Reconciliation from PBFT to Core Banking PBFT (CB-PBFT)
Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Profit Before Financing & Tax (PBFT)	6,420	–	–
Subtract: Trading income volatility adjustment (IFRS 9)	–1,180	+295	–12
Add back: NIM normalisation (interest rate impact smoothing)	+860	–215	0
Add/Subtract: ECL normalisation (IFRS 9 “through-the-cycle”)	+540	–135	–4
Subtract: One-off regulatory compliance costs	–310	+78	–1
Core Banking PBFT (CB-PBFT)	6,330

Notes: Tax/NCI effects required under IFRS 18 ¶123(d) and B141. Values illustrative.

3.1.4 Explanation of Adjustments

Trading income volatility adjustment (IFRS 9)

Markets can generate huge swings in IFRS 9 fair values that do not represent underlying banking performance.
Banks adjust these to show the recurring economic income of:

corporate lending,
retail banking,
private wealth,
transaction services.

IFRS 18 requires a policy-based definition of which instruments fall into the volatility adjustment.

NIM normalisation

Net Interest Margin reflects:

central bank base rates,
yield curve shape,
deposit repricing,
hedging strategies.

In volatile interest-rate environments (e.g., 2022–2024), NIM swings can distort PBFT.
Normalisation clarifies structural margin performance.

ECL normalisation (IFRS 9)

Banks often present a “through-the-cycle” risk cost.
But IFRS 18 BC354–BC358 prohibit excluding recurring volatility.
Therefore, ECL normalisation must be:

documented,
based on expected loss models,
consistent year-to-year,
validated by risk management.

Regulatory compliance costs

Major items include:

bank levies,
resolution funds,
deposit insurance schemes,
ring-fencing adjustments.

These are sometimes “policy-driven” and not reflective of operating performance.

Under IFRS 18, these adjustments must be defined narrowly and applied symmetrically.

3.1.5 Interpretation & Governance (Banking)

Core PBFT answers three investor-critical questions:

How much did the bank earn from core client activities?
(not trading noise)
What is the sustainable interest margin?
(not temporary rate arbitrage)
Is credit performance normal or elevated?
(risk cost clarity)

Governance responsibilities

Audit Committees must ensure:

neutrality of trading volatility adjustments,
consistency of ECL normalisation methodology,
clear linkage to IFRS 7/9 disclosures,
stable NIM definitions across periods,
control evidence for regulatory adjustments.

Banks with weak MPM governance risk losing investor trust — IFRS 18 places them under a microscope.

3.2 MPM 4 — Adjusted Cost–Income Ratio (Adjusted CIR)

3.2.1 Definition and IFRS 18 Context

Adjusted CIR =

Operating expenses
± Regulatory/compliance surge adjustments
± IT transformation costs
± Restructuring charges

Operating income (IFRS)
± Normalisation of non-banking income

CIR is the most widely used operational KPI in banking.
It measures cost discipline relative to income generation.

However, IFRS income fluctuates due to:

trading gains/losses,
hedging volatility,
hyperinflation accounting,
fair-value measurement effects.

Therefore, banks often disclose an Adjusted CIR that normalises:

regulatory shocks,
digital transformation surges,
restructuring programmes,
non-core gains/losses.

Under IFRS 18, Adjusted CIR becomes an MPM subject to full disclosure governance.

3.2.2 Adjusted CIR Reconciliation Table

Reconciliation to Adjusted Cost–Income Ratio (Adjusted CIR)
Adjustment	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Operating expenses (IFRS)	15,600	–	–
Subtract: Regulatory surge (one-off)	–920	+230	–5
Subtract: IT transformation charges	–1,050	+262	0
Subtract: Restructuring charges	–640	+160	–3
Adjusted operating expenses	12,990
Operating income (IFRS)	21,400	–	–
Add: Non-core income normalisation	+520	–130	0
Adjusted operating income	21,920
Adjusted CIR (%)	59.3%

3.2.3 Explanation of Adjustments

Regulatory surge adjustments

Examples:

extraordinary prudential levies,
deposit guarantee fund top-ups,
ring-fencing structural adjustments.

IFRS 18 requires defining these narrowly and ensuring they are truly non-recurring.

IT transformation charges

Banks undergoing:

cloud migrations,
payments platform rewrites,
compliance automation,
core banking modernisation.

These often have multi-year timelines.
IFRS 18 BC354–BC358 warns: ongoing transformation is not “one-off.”

Restructuring charges

Branch closures, workforce rebalancing, organisational simplification.
Governance requires:

board approval,
IAS 37 compliance,
clear sunset dates.

Non-core income normalisation

Banks often exclude:

property sales,
legacy portfolio gains,
one-off dividend income.

Under IFRS 18, normalisation must be neutrally applied — excluding losses and gains symmetrically.

3.2.4 Interpretation & Governance (Banking)

Adjusted CIR becomes a governance barometer of banking discipline.
Investors watch it closely to detect:

operating leverage,
digital transformation ROI,
efficiency of scale,
sustainability of margins.

Governance Implications

Audit Committees must verify:

eligibility criteria for adjustments,
neutrality and symmetry,
consistency across subsidiaries,
alignment with cost allocation principles under IFRS 8.

Banks with poor CIR governance risk accusations of “adjusted performance engineering.”

4. Insurance Sector – Underlying Insurance Operating Result (UIOR) & Adjusted Combined Operating Ratio (Adjusted COR)

Insurance is the most accounting-complex of the three sectors in this cornerstone.
The introduction of IFRS 17 – Insurance Contracts fundamentally changed the timing, measurement and presentation of insurance profit.
Large insurers (Allianz, AXA, Zurich, Munich Re, Prudential) now use internal performance metrics to explain underlying profitability:

Underlying Insurance Operating Result (UIOR)
Adjusted Combined Operating Ratio (Adjusted COR)
Underlying investment result
New business margin
Underlying technical result

Under IFRS 18, whenever these appear in public communications — earnings calls, annual reports, investor presentations, regulatory reporting — they become Management Performance Measures (MPMs) and must meet the full requirements of IFRS 18.117–125 and IFRS 18.B134–B141.

This section explains how UIOR and Adjusted COR must be constructed and governed under IFRS 18.

4.1 MPM 5 — Underlying Insurance Operating Result (UIOR)

Definition and IFRS 18 Context

UIOR = Operating profit + Changes in IFRS 17 discount rates + Acquisition cost deferrals and amortisation adjustments + CSM (Contractual Service Margin) release timing adjustments ± Non-economic market movements (IFRS 9 / IFRS 17 interactions)

UIOR is designed to show the underlying performance of insurance operations by removing:

volatility from discount rate changes,
timing mismatches in CSM release,
market noise affecting the insurance finance result,
acquisition cost distortions under IFRS 17,
hedging-induced volatility under IFRS 9.

Why insurers use UIOR

IFRS 17 splits insurance profit into:

service result (underwriting & CSM release),
insurance finance result (discount rates & financial risks),
investment result (IFRS 9).

The combination can produce volatility misaligned with operational performance.
UIOR therefore bridges IFRS results to stable operational profit.

Under IFRS 18, this measure becomes an auditable MPM.

4.1.2 UIOR Reconciliation Table

Reconciliation from Operating profit to Underlying Insurance Operating Result (UIOR)
Reconciling item	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Operating profit (IFRS subtotal)	7,310	–	–
Add back: Effect of changes in discount rates (IFRS 17)	+1,480	–370	–9
Add/Subtract: Acquisition cost deferral adjustments	+540	–135	0
Add/Subtract: CSM release timing (temporarily deferred or accelerated)	+320	–80	–2
Add/Subtract: Non-economic market movements (IFRS 9 / IFRS 17 finance mismatch)	+410	–102	–1
Underlying Insurance Operating Result (UIOR)	10,060

4.1.3 Explanation of Adjustments (Deep-Dive)

Changes in discount rates (IFRS 17 insurance finance result)

IFRS 17 splits discount rate effects between:

OCI (for some accounting choices),
the profit or loss statement (others).

This introduces volatility independent of insurance operational performance.
UIOR removes it to reflect underwriting reality, not market shifts.

Acquisition cost deferral and amortisation adjustments

Insurers have different acquisition cost policies (IFRS 17 B125–B128).
Adjustments may include:

amortisation timing corrections,
deferral of multi-year commissions,
harmonisation across product lines.

UIOR normalises these differences.

CSM release timing

The Contractual Service Margin measures unearned profit.
But in some periods:

service patterns change,
coverage units adjust,
onerous contract tests rebalance the CSM,
lapses deviate from expectations.

UIOR adjusts CSM releases to present underlying expected release patterns.

Non-economic market movements

Under IFRS 9 and IFRS 17, mismatches occur when:

assets measured at FVTPL do not match insurance liabilities,
yield curves shift,
credit spreads widen,
hedges imperfectly offset risks.

UIOR removes mismatches not driven by insurance service performance.

4.1.4 Interpretation & Governance (Insurance)

UIOR answers:

What is the insurer’s true underlying technical performance?
Is the CSM release sustainable?
Do acquisition costs align with long-term profitability?
Are market movements distorting IFRS results?

Governance implications

Audit Committees must ensure:

discount-rate adjustments comply with IFRS 17 transition choices,
acquisition cost deferrals follow documented policy,
CSM adjustments are consistent with coverage-units methodology,
non-economic adjustments comply with IFRS 18.BC354–BC358 neutrality standards.

UIOR becomes a strategic performance lens through which boards understand sustainable insurance profitability.

4.2 MPM 6 — Adjusted Combined Operating Ratio (Adjusted COR)

4.2.1 Definition and IFRS 18 Context

Adjusted COR =	(Claims incurred + Expenses ± Catastrophe load normalisation ± Reserve strengthening normalization ± Investment variance adjustments)
	Net earned premiums

The Combined Operating Ratio (COR) is the core non-life KPI, expressing:

underwriting discipline,
pricing adequacy,
claims experience,
expense management.

But IFRS 17 introduced new volatility through:

risk adjustment movements,
discount rate changes,
CSM effects for multi-year products.

Insurers therefore use Adjusted COR to reflect underlying underwriting performance.

Under IFRS 18, Adjusted COR becomes an MPM requiring:

consistent adjustment rules,
full reconciliation,
explanation of why adjustments matter,
proof that adjustments do not remove “normal volatility.”

4.2.2 Adjusted COR Reconciliation Table

Reconciliation to Adjusted Combined Operating Ratio (Adjusted COR)
Adjustment	Amount (CU m)	Tax effect (CU m)	NCI effect (CU m)
Reported COR (IFRS basis)	92.4%	–	–
Subtract: Catastrophe load above/below long-term trend	–2.1%	n/a	n/a
Subtract: Reserve strengthening (one-off)	–1.4%	n/a	n/a
Add back: Investment variance (IFRS 9)	+0.6%	n/a	n/a
Adjusted COR	89.5%

4.2.3 Explanation of Adjustments

Catastrophe load normalisation

Catastrophe events (storms, floods, wildfires) are a normal feature of non-life insurance.
But exceptionally large or rare events distort year-to-year COR.

IFRS 18 imposes two guardrails:

IFRS 18.BC354–BC358 prohibit removing recurring risk.
Adjustments must reflect long-term catastrophe experience, not opportunistic smoothing.

Reserve strengthening normalisation

Reserve strengthening can reflect:

updated claims development,
new actuarial assumptions,
model refinements.

Adjusted COR removes major, non-recurring reserve movements, but only when:

they relate to prior-year corrections,
they are not expected to recur,
management documents the rationale and actuarial opinion.

Investment variance

Insurers often match assets and liabilities imperfectly.
Investment gains/losses under IFRS 9 can distort COR — which traditionally reflects underwriting only.
Adjusted COR adds back or subtracts investment variance to preserve underwriting focus.

4.2.4 Interpretation & Governance (Insurance)

Adjusted COR signals:

pricing adequacy,
operational efficiency,
claims discipline,
risk selection quality,
underwriting margin sustainability.

Governance considerations:

catastrophe normalisation must be statistically justified,
reserve adjustments require actuarial review (IFRS 17 CSM interactions),
investment variance must tie back to audited IFRS 9 disclosures,
adjustments cannot hide structural underwriting weakness.

Audit Committees must challenge:

whether events are truly exceptional,
whether catastrophe adjustments match multi-year patterns,
whether reserve changes are genuinely non-recurring.

5. IFRS 18-Compliant Combined Disclosure Note (Energy, Banking & Insurance)

Management Performance Measures (MPMs)

The Group presents several Management Performance Measures used in internal performance analysis and external communications. These measures are not defined by IFRS but represent subtotals of income and expenses relevant to evaluating underlying performance across our Energy, Banking and Insurance activities.

The MPMs presented are:

Energy:

Replacement Cost Operating Profit (RCOP)
Underlying Upstream Operating Profit (UUOP)

Banking:

Core Banking Profit Before Financing & Taxes (CB-PBFT)
Adjusted Cost–Income Ratio (Adjusted CIR)

Insurance:

Underlying Insurance Operating Result (UIOR)
Adjusted Combined Operating Ratio (Adjusted COR)

Usefulness (IFRS 18.123(a))
These measures provide insight into the recurring performance of long-cycle industries by removing short-term volatility arising from inventory remeasurement, IFRS 9 fair-value movements, IFRS 17 discount rate and CSM timing effects, regulatory surges, restructuring, and catastrophe deviations from long-term trends.

Calculation method (IFRS 18.123(b))
Detailed descriptions of how each MPM is constructed, including the nature of adjustments, are presented in Sections 3–5 of this report.

Reconciliation (IFRS 18.123(c))
Tabular reconciliations to the nearest IFRS subtotals (Operating profit or PBFT) are presented for each MPM, including a breakdown of adjustments.

Tax and non-controlling interest effects (IFRS 18.123(d), IFRS 18.B141)
Tax effects are determined using the statutory rate applicable in each jurisdiction. NCI impacts are allocated according to ownership interests in each subsidiary.

Consistency and comparability (IFRS 18.124–125)
Definitions of MPMs remained consistent during the reporting period. If definitions are modified in future periods, comparative information will be restated or explanatory disclosure will be provided.

6. Governance & Quality Assurance (Combined Across the Three Sectors)

Long-cycle industries depend on stable, credible adjusted metrics. Under IFRS 18, those metrics become part of the governance architecture rather than IR narratives.
Across energy, banking and insurance, the central governance themes are the same — but the risks differ.

6.1 Governance Themes Common to All Sectors

6.1.1 Policy Ownership & Board Approval

Each MPM must have a documented policy including:

definition,
purpose,
data sources,
adjustments allowed/disallowed,
tax/NCI methodology,
internal controls required,
examples of recurring vs non-recurring items.

Boards must approve these policies annually, ensuring neutrality under IFRS 18.BC354–BC358.

6.1.2 SOX/ICFR Integration

Because MPMs now sit inside IFRS financial statements, they fall under management certification and Internal Control over Financial Reporting.

Controls must cover:

completeness of reconciling items,
accuracy of measurement,
review of adjustments by independent controllers,
linkage to IFRS 9, IFRS 17, IAS 2, IAS 37 source data,
retention of evidence used for tax/NCI allocation.

For example, Internal Audit must/could test these controls annually.

6.1.3 External Auditor Procedures

Auditors follow ISA 330 risk-based procedures, including:

agreement of amounts to ledger balances,
verifying classification consistency,
reviewing actuarial and risk models (insurance),
validating hedge accounting documentation (energy/banking),
confirming reasonableness of catastrophe normalisations (insurance),
validating derivative timing adjustments (energy/banking),
testing neutrality and symmetry.

6.2 Sector-Specific Governance Considerations

Energy

Audit Committees must scrutinise:

inventory valuation policies (IAS 2),
derivative documentation (IFRS 9),
IAS 37 decommissioning and restoration assumptions,
consistency in classifying portfolio divestments,
economic justification for “non-operational FV impacts”.

Banking

Governance themes include:

stability of NIM normalisation methodology,
risk model integrity under IFRS 9 ECL frameworks,
documentation supporting “non-recurring” regulatory costs,
linkage of PBFT adjustments to IFRS 7 disclosures,
neutrality of trading volatility exclusions.

Insurance

Audit Committees must ensure:

discount-rate adjustments align with IFRS 17 accounting choices,
acquisition cost policy under IFRS 17 B125–B128 is consistently applied,
CSM release adjustments match coverage-unit methodology,
catastrophe loads reflect long-term actuarial expectations,
reserve strengthening adjustments follow actuarial validation.

6.3 Preventing Adjustment Drift

The major risk across all three sectors is “adjustment creep” — gradually expanding MPM definitions to paint a smoother performance picture.
IFRS 18 combats this through:

mandatory comparability requirements (IFRS 18.124–125),
narrative explanation of why each adjustment is useful (IFRS 18.123(a)),
transparency of tax/NCI effects (IFRS 18.123(d)),
prohibition of removing recurring volatility (IFRS 18.BC354–BC358).

Audit Committees must monitor trend integrity — ensuring MPMs do not become tools for earnings management.

IFRS 18 MPMs Energy Banking Insurance

IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 MPMs Energy Banking Insurance IFRS 18 Management Performance Measures Energy, IFRS 18 Management Performance Measures Banking, IFRS 18 Management Performance Measures Insurance

Read more on IFRS 18 on ACCAglobal.com, the global body for professional accountants.

7. Conclusion – Performance With Evidence

Energy, banking and insurance have used adjusted performance measures for decades.
They exist for good reasons: underlying economics differ materially from IFRS timing, measurement and valuation effects.
But until IFRS 18, these measures operated outside audited governance.

IFRS 18 transforms them.

It requires every adjusted measure — RCOP, UUOP, Core PBFT, Adjusted CIR, UIOR, Adjusted COR — to be:

reconciled to IFRS subtotals,
clearly defined,
applied consistently,
supported by documentation,
governed by internal controls,
and audited with the same discipline as statutory results.

This transparency strengthens credibility in three long-cycle sectors where trust, stability and capital allocation depend on clear performance communication.

For energy, IFRS 18 separates operational reality from commodity noise — giving RCOP and UUOP a disciplined, auditable structure.

For banking, it forces clarity around trading volatility, ECL risk costs, interest margin sustainability and regulatory adjustments — turning Core PBFT and Adjusted CIR into robust governance tools.

For insurance, it grounds UIOR and Adjusted COR in the mechanics of IFRS 17 — revealing underlying technical performance, long-term catastrophe experience, and actuarial credibility.

IFRS 18 MPMs Energy Banking Insurance

Across all three sectors, IFRS 18 delivers a single principle:

Performance is persuasive only when reconciled.

Adjusted numbers no longer live in a parallel universe of investor communication.
They live inside the audited financial statements, backed by evidence, controls and board oversight.

Read the original IFRS 18 Presentation and Disclosure in Financial Statements at ifrs.org.