International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 867
43.9
42.3
1.6
Other technical reserves
1,956.2
1,672.0
284.2
Liability adequacy test reserves
0.0
0.0
0.0
Life technical reserves
183,734.5
166,998.6
16,735.9
Unearned premium reserves
1,495.9
1,367.0
128.9
Life premium reserves
175,339.1
158,949.2
16,390.0
Outstanding claims reserves
2,263.7
2,086.9
176.8
Policyholder surplus reserves
3,978.5
3,948.6
29.9
Other technical reserves
657.3
647.0
10.3
Liability adequacy test reserves
0.0
0.0
0.0
Financial instruments with DPF
134,126.5
129,617.8
4,508.6
Life premium reserves
126,670.6
122,442.6
4,228.0
Outstanding claims reserves
2,566.7
2,450.2
116.5
Policyholder surplus reserves
4,889.1
4,725.0
164.2
Other technical reserves
0.0
0.0
0.0
Liability adequacy test reserves
0.0
0.0
0.0
Financial instruments without DPF
4,800.7
4,468.5
332.3
Derivative instruments separated from the host contract
0.0
0.0
0.0
Deferred participation reserve
30,713.6
30,713.6
0.0
Total insurance and financial liabilities
361,748.3
338,715.7
23,032.6
IFRS 7 requires an entity to disclose the carrying amount of financial assets pledged as
collateral for liabilities, the carrying amount of financial assets pledged as collateral for
contingent liabilities, and any terms and conditions relating to assets pledged as
collateral. [IFRS 7.14-15]. In complying with this requirement, it might be necessary to
disclose segregation requirements that are intended to protect policyholders by
restricting the use of some of the insurer’s assets. [IFRS 4.IG23A].
Prudential makes the following disclosures in respect of the segregation requirements
applying to its assets and liabilities.
Insurance contracts (IFRS 4) 4379
Extract 51.16: Prudential plc (2016)
Notes to Primary statements [extract]
C12 Capital [extract]
(c) Transferability of available capital
In the UK, the Solvency II regime became effective on 1 January 2016. PAC is required to meet the Solvency II
capital requirements as a company as a whole, ie covering both its ring-fenced with-profit funds and non-profit funds.
Further, the surplus of the with-profits funds is ring-fenced from the shareholder balance sheet with restrictions as to
its distribution. Distributions from the with-profits funds to shareholders continue to reflect the shareholders’ one-
ninth share of the cost of declared policyholders’ bonuses.
For Jackson, capital retention is maintained at a level consistent with an appropriate rating by Standard & Poor’s.
Currently, Jackson is rated AA. Jackson can pay dividends on its capital stock only out of earned surplus unless
prior regulatory approval is obtained. Furthermore, dividends which exceed the greater of statutory net gain
from operations less net realised investment losses for the prior year or 10 per cent of Jackson’s prior year end
statutory surplus, excluding any increase arising from the application of permitted practices, require prior
regulatory approval.
For Asia subsidiaries, the amounts retained within the companies are at levels that provide an appropriate level of
capital strength in excess of the local regulatory minimum. For ring-fenced with-profits funds, the excess of assets
over liabilities is retained with distribution tied to the shareholders’ share of bonuses through declaration of actuarially determined surplus. The businesses in Asia may, in general, remit dividends to the UK, provided the statutory
insurance fund meets the local regulatory solvency targets.
Available capital of the non-insurance business units is transferable to the life assurance businesses after taking
account of an appropriate level of operating capital, based on local regulatory solvency targets, over and above
basis liabilities.
11.1.2.B
Income and expense
IAS 1 lists minimum line items that an entity should present on the face of its income
statement. It also requires the presentation of additional line items when this is
necessary to present fairly the entity’s financial performance. To satisfy these
requirements, disclosure of the following amounts on the face of the income statement
might be required:
(a) revenue from insurance contracts issued (without any deduction for reinsurance held);
(b) income from contracts with reinsurers;
(c) expense for policyholder claims and benefits (without any reduction for
reinsurance held); and
(d) expenses arising from reinsurance held. [IFRS 4.IG24].
The extracts below show two alternative methods of presenting revenue and expense
on the face of the income statement. Royal & Sun Alliance presents sub-totals of net
earned premiums (premiums net of reinsurance premiums) and net claims (claims net of
reinsurance claims) on the face of its income statement. AEGON presents reinsurance
premiums within expenses and reinsurance claims within income on the face of its
income statement.
4380 Chapter 51
Extract 51.17: RSA Insurance Group plc (2016)
Consolidated Income Statement for the year ended 31 December 2016 [extract]
2016
2015
Notes
£m
£m
Income
Gross written premiums
7,220
6,858
Less: reinsurance premiums
(981)
(906)
Net written premiums
8
6,239
5,952
Change in the gross provision for unearned premiums
109
(97)
Less: change in provision for unearned reinsurance premiums
(8)
305
Change in provision for unearned premiums
101
208
Net earned premiums
6,340
6,160
Net investment return
9
347
381
Other operating income
11
170
142
Total income
6,857
6,683
Expenses
Gross
claims
incurred
(4,826)
(4,496)
Less: claims recoveries from reinsurers
707
367
Net claims
10
(4,119)
(4,129)
; Underwriting and policy acquisition costs
(1,977)
(1,986)
Unwind of discount
(59)
(52)
Other operating expenses
12
(229)
(308)
(6,384)
(6,475)
Extract 51.18: AEGON N.V. (2016)
Consolidated Income Statement of AEGON N.V [extract]
For The Year Ended December 31
Amount in EUR million (except per share data)
Note
2016
2015
2014
Premium income
6
23,453
22,925
19,864
Investment income
7
7,788
8,525
8,148
Fee and commission income
8
2,408
2,438
2,137
Other revenues
7
14
7
Total revenues
33,655 33,902
30,157
Income from reinsurance ceded
9
3,687
3,321
2,906
Results from financial transactions
10
15,949
401
13,772
Other income
11
66
83
61
Total Income
53,357
37,707
46,896
Premiums paid to reinsurers
6
3,176
2,979
3,011
Policyholder claims and benefits
12
41,974
26,443
36,214
Profit sharing and rebates
13
49
31
17
Commissions and expenses
14
6,351
6,598
5,629
Impairment charges/(reversals)
15
95
1,251
87
Interest charges and related fees
16
347
412
371
Other charges
17
700
774
172
Total Charges
52,693
38,489
45,502
Insurance contracts (IFRS 4) 4381
IFRS 4 does not prescribe a particular method for recognising revenue and recording
expenses so a variety of models are used, the most common ones being:
• recognising premiums earned during the period as revenue and recognising claims
arising during the period (including estimates of claims incurred but not reported)
as an expense;
• recognising premiums received as revenue and at the same time recognising an
expense representing the resulting increase in the insurance liability; and
• initially recognising premiums received as deposit receipts. Revenue will include
charges for items such as mortality, and expenses will include the policyholder
claims and benefits related to those charges. [IFRS 4.IG25].
IAS 1 requires additional disclosures of various items of income and expense. To meet
this requirement the following additional items might need to be disclosed, either on
the face of the income statement or in the notes:
(a) acquisition costs (distinguishing those recognised as an expense immediately from
the amortisation of deferred acquisition costs);
(b) the effects of changes in estimates and assumptions (see 11.1.5 below);
(c) losses recognised as a result of applying liability adequacy tests;
(d) for insurance liabilities measured on a discounted basis:
(i) accretion of interest to reflect the passage of time; and
(ii) the effect of changes in discount rates; and
(e) distributions or allocations to holders of contracts that contain a DPF. The portion
of profit or loss that relates to any equity component of those contracts is an
allocation of profit or loss, not expense or income (see 6.1 above). [IFRS 4.IG26].
These items should not be offset against income or expense arising from reinsurance
held. [IFRS 4.IG28].
Some insurers present a detailed analysis of the sources of their earnings from insurance
activities, either in the income statement, or in the notes. Such an analysis may provide
useful information about both the income and expense of the current period and risk
exposures faced during the period. [IFRS 4.IG27].
To the extent that gains or losses from insurance contracts are recognised in other
comprehensive income, e.g. as a result of applying shadow accounting (see 8.3 above),
similar considerations to those discussed above will apply.
If non-uniform accounting policies for the insurance liabilities of subsidiaries are
adopted, it might be necessary to disaggregate the disclosures about the amounts
reported to give meaningful information about amounts determined using different
accounting policies. [IFRS 4.IG30].
4382 Chapter 51
11.1.2.C Cash
flows
If an insurer presents its cash flow statement using the direct method, IFRS 4 also requires
it to disclose the cash flows that arise from insurance contracts although it does not require
disclosure of the component cash flows associated with its insurance activity. [IFRS 4.IG19].
11.1.3
Gains or losses on buying reinsurance
Gains or losses on buying reinsurance may, using some measurement models, arise from
imperfect measurements of the underlying direct insurance liability. Furthermore, some
measurement models require a cedant to defer some of those gains and losses and amortise
them over the period of the related risk exposures, or some other period. [IFRS 4.IG29].
Therefore, a cedant is required to provide specific disclosure about gains or losses on
buying reinsurance as discussed at 7.2.6.C and 11.1 above. In addition, if gains and losses
on buying reinsurance are deferred and amortised, disclosure is required of the
amortisation for the period and the amounts remaining unamortised at the beginning
and end of the period. [IFRS 4.37(b)(i)-(ii)].
11.1.4
Process used to determine significant assumptions
As noted at 11.1 above, IFRS 4 requires disclosure of the process used to determine the
assumptions that have the greatest effect on the measurement of the recognised
amounts. Where practicable, quantified disclosure of these assumptions should also be
given. [IFRS 4.37(c)].
Some respondents to ED 5 expressed concern that information about assumptions and
changes in assumptions (see 11.1.5 below) might be costly to prepare and of limited
usefulness. They argued that there are many possible assumptions that could be
disclosed and excessive aggregation would result in meaningless information, whereas
excessive disaggregation could be costly, lead to information overload, and reveal
commercially sensitive information. In response to these concerns, the IASB
determined that disclosure about assumptions should focus on the process used to
derive them. [IFRS 4.BC212]. Further, the standard refers only to those assumptions ‘that
have the greatest effect on the measurement of’ the recognised amo
unts.
IFRS 4 does not prescribe specific assumptions that should be disclosed, because different
assumptions will be more significant for different types of contracts. [IFRS 4.IG33].
For some disclosures, such as discount rates or assumptions about future trends or
general inflation, it may be relatively easy to disclose the assumptions used (aggregated
at a reasonable but not excessive level, when necessary). For other assumptions, such
as mortality rates derived from tables, it may not be practicable to disclose quantified
assumptions because there are too many, in which case it is more important to describe
the process used to generate the assumptions. [IFRS 4.IG31].
Insurance contracts (IFRS 4) 4383
The description of the process used to describe assumptions might include a summary
of the most significant of the following:
(a) the objective of the assumptions, for example, whether the assumptions are
intended to be neutral estimates of the most likely or expected outcome (‘best
estimates’) or to provide a given level of assurance or level of sufficiency. If they
are intended to provide a quantitative or qualitative level of assurance that level
could be disclosed;
(b) the source of data used as inputs for the assumptions that have the greatest effect,
for example, whether the inputs are internal, external or a mixture of the two. For
data derived from detailed studies that are not carried out annually, the criteria
used to determine when the studies are updated and the date of the latest update
could be disclosed;
(c) the extent to which the assumptions are consistent with observable market prices
or other published information;
(d) a description of how past experience, current conditions and other relevant
benchmarks are taken into account in developing estimates and assumptions. If a
relationship would normally be expected between past experience and future
results, the reasons for using assumptions that differ from past experience and an
indication of the extent of the difference could be explained;