International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 869
1
Total
(4,384)
2262
The impact of interest rates on long-term business relates primarily to annuities in the UK (including any change in
credit default and reinvestment risk provisions), where a decrease in the valuation interest rate, in response to
decreasing risk-free rates and narrowing credit spreads, has increased liabilities. The overall impact on profit also
depends on movements in the value of assets backing the liabilities, which is not included in this disclosure.
In the UK, expense reserves have reduced and persistency reserves have increased following a review of recent
experience. There has been a release of annuitant mortality reserves in the UK following a review of recent experience
(including the exposure to anti-selection risk) and the adoption of CML_2015 mortality improvement assumptions,
partially offset by a change in base mortality assumptions in response to revisions in the calculation of mortality exposure.
Tax and other assumptions include the profit arising from a change in estimate related to the recoverability testing of
the deferred acquisition cost assets (DAC) in the UK. The allowance for risk for non-participating investment
contracts and the level of prudence for insurance contracts has been re-assessed, resulting in amortisation or
impairment of DAC in prior reporting periods being reversed (subject to the original amortisation profile).
The adverse change in discount rate assumptions on general insurance and health business of £242 million arises as
a result of a decrease in the real interest rates used to discount claim reserves for periodic payment orders and latent
claims. Market interest rates used to discount periodic payment orders and latent claims have reduced and the
estimated future inflation rate used to value periodic payment orders has been increased to be consistent with market
expectations. This has, in part, been offset by a change in estimate for the interest rate used to discount periodic
payment orders to allow for the illiquid nature of these liabilities.
Insurance contracts (IFRS 4) 4389
11.1.6
Reconciliations of changes in insurance assets and liabilities
As noted at 11.1 above, IFRS 4 requires reconciliations of changes in insurance liabilities,
reinsurance assets and, if any, related deferred acquisition costs, although it does not
prescribe the line items that should appear in the reconciliations. [IFRS 4.37(e)].
The changes need not be disaggregated into broad classes, but they might be if different
forms of analysis are more relevant for different types of liability. For insurance
liabilities the changes might include:
(a) the carrying amount at the beginning and end of the period;
(b) additional insurance liabilities arising during the period;
(c) cash
paid;
(d) income and expense included in profit or loss;
(e) liabilities acquired from, or transferred to, other insurers; and
(f) net exchange differences arising on the translation of the financial statements into
a different presentation currency, and on the translation of a foreign operation into
the presentation currency of the reporting entity. [IFRS 4.IG37].
This reconciliation is also required for each period for which comparative information
is presented. [IFRS 4.IG38].
The reconciliations given by CNP Assurances for life insurance, non-life insurance and
financial instruments with a DPF are shown below.
4390 Chapter 51
In the tables the amounts are shown before and after the impact of reinsurance.
Extract 51.23: CNP Assurances (2016)
ASSETS, EQUITY AND LIABILITIES [extract]
Note 10. Analyses of insurance and financial liabilities [extract]
10.2 Change in technical reserves [extract]
This note presents changes in technical reserves by category, such as those arising from changes in the assumptions
applied to measure insurance liabilities. Each change with a material impact on the consolidated financial statements
is shown separately. Movements are presented before and after reinsurance.
10.2.1.1 Changes in mathematical reserves – life insurance – at 31 December 2016 [extract]
Before
Net of
(in € millions)
reinsurance
reinsurance Reinsurance
Mathematical reserves at the beginning of the period
293,987.3
284,559.5
9,427.7
Premiums 27,029.7
13,657.2
13,372.5
Extinguished liabilities (benefit payments) (26,483.8)
(24,387.0) (2,096.8)
Locked-in gains
6,903.8
6,412.8
491.0
Change in value of linked portfolios
409.1
409.1
0.0
Changes in scope (acquisitions/divestments) 685.9
687.1
(1.2)
Outstanding fees
(1,763.6)
(1,686.1)
(77.5)
Surpluses/deficits (2.4)
(2.4)
0.0
Currency effect
2,014.7
2,014.7
0.0
Changes in assumptions
0.0
0.0
0.0
Newly-consolidated companies
0.0
0.0
0.0
Deconsolidated companies
0.0
0.0
0.0
Non-current liabilities related to assets held for sale and
discontinued operations
0.0
0.0
0.0
Other (770.9)
(273.1)
(497.8)
Mathematical reserves at the end of the period
302,009.7
281,391.8
20,618.0
10.2.2.1 Changes in technical reserves – non-life insurance – at 31 December 2016 [extract]
Before
Net of
(in € millions)
reinsurance
reinsurance Reinsurance
Outstanding claims reserves at the beginning of the period
5,911.7
4,948.1
963.6
Claims expenses for the period
2,210.3
1,959.8
250.5
Prior period surpluses/deficits
(0.0)
(0.0)
(0.0)
Total claims expenses
2,210.2
1,959.8
250.4
Current period claims settled during the period
(2,645.5)
(2,508.8) (136.6)
Prior period claims settled during the period
(40.0)
(37.4)
(2.6)
Total paid claims
(2,685.5)
(2,546.2)
(139.3)
Changes in scope (acquisitions/divestments) 0.0
0.0
0.0
Currency effect
38.4
32.4
6.0
Newly-consolidated companies
0.0
0.0
0.0
Non-current liabilities related to assets held for sale and
discontinued operations
0.0
0.0
0.0
Other 0.0
0.0
0.0
Outstanding claims reserves at the end of the period
5,474.9
/>
4,394.1
1,080.7
Insurance contracts (IFRS 4) 4391
10.2.3 Changes in mathematical reserves – financial instruments with DPF [extract]
31.12.2016
Before
Net of
(in € millions)
reinsurance
reinsurance Reinsurance
Mathematical reserves at the beginning of the period
4,793.4
4,646.3
147.1
Premiums 451.8
447.2
4.6
Extinguished liabilities (benefit payments) (885.2)
(852.6) (32.6)
Locked-in gains
45.8
45.8
0.0
Change in value of linked liabilities 386.1
395.7
(9.6)
Changes in scope (acquisitions/divestments) (67.8)
(67.8)
0.0
Currency effect
151.4
151.4
0.0
Newly-consolidated companies
0.0
0.0
0.0
Deconsolidated companies
0.0
0.0
0.0
Non-current liabilities related to assets held for sale and
discontinued operations
0.0
0.0
0.0
Other (74.8)
(297.5)
222.8
Mathematical reserves at the end of the period
4,800.7
4,468.5
332.3
A reconciliation of deferred acquisition costs might include:
(a) the carrying amount at the beginning and end of the period;
(b) the amounts incurred during the period;
(c) the amortisation for the period;
(d) impairment
losses recognised during the period; and
(e) other changes categorised by cause and type. [IFRS 4.IG39].
4392 Chapter 51
Aviva’s reconciliation of deferred acquisition costs is illustrated below.
Extract 51.24: Aviva plc (2016)
Notes to the consolidated financial statements [extract]
28 – Deferred acquisition costs, other assets, prepayments and accrued income [extract]
(b) Deferred acquisition costs – movements in the year [extract]
The movements in deferred acquisition costs (DAC) during the year were:
2016
Restated 2015
Retail
General
General
fund
insurance
insurance manage-
Long-
and
Retail fund
Long-term and health
ment
term
health management
business
business
business Total
business
business
business Total
£m £m £m £m £m £m £m
£m
Carrying amount
at 1 January
1,604
812
5
2,421
1,453
852
7
2,312
Acquisition costs
deferred during
the
year
283 2,264
– 2,547 263 1,952
– 2,215
Amortisation
(377) (2,118)
(2) (2,497) (167) (1,950)
(2) (2,119)
Impact of
assumption
changes
40 – – 40 73 – – 73
Effect of portfolio
transfers, acquisitions
and disposals
(29)
(8)
–
(37)
–
–
–
–
Foreign exchange
rate movements
53
87
–
140
(18)
(42)
–
(60)
Carrying amount
at
31
December 1,574 1,037
3 2,614 1,604 812
5
2,421
The balance of deferred acquisition costs for long-term business decreased over 2016 mainly due to increased
amortisation as a result of projected future profits being reduced in response to an adjustment to the allocation of fixed costs between product lines in our UK Life business. The balance of deferred acquisition costs for general insurance and
health business increased over 2016 mainly due to a new partnership distribution deal and increased new business sales.
An insurer may have intangible assets related to insurance contracts acquired in a
business combination or portfolio transfer. IFRS 4 does not require any disclosures for
intangible assets in addition to those required by IAS 38 (see 9.2 above). [IFRS 4.IG40].
11.2 Nature and extent of risks arising from insurance contracts
The second key disclosure principle established by IFRS 4 is that information should be
disclosed to enable the users of the financial statements to evaluate the nature and
extent of risks arising from insurance contracts. [IFRS 4.38].
To comply with this principle, an insurer needs to disclose:
(a) its objectives, policies and processes for managing risks arising from insurance
contracts and the methods used to manage those risks;
Insurance contracts (IFRS 4) 4393
(b) information about insurance risk (both before and after risk mitigation by
reinsurance), including information about:
(i) sensitivity to insurance risk;
(ii) concentrations of insurance risk, including a description of how management
determines concentrations and a description of the shared characteristic that
identifies each concentration (e.g. type of insured event, geographical area or
currency); and
(iii) actual claims compared with previous estimates (i.e. claims development).
This disclosure has to go back to the period when the earliest material claim
arose for which there is still uncertainty about the amount and timing of the
claims payments, but need not go back more than ten years. Information
about claims for which uncertainty about the amount and timing of claims
payments is typically resolved within one year need not be disclosed;
(c) information about credit risk, liquidity risk and market risk that would be required
by IFRS 7 if insurance contracts were within the scope of that standard. However:
(i) an insurer need not provide the maturity analyses required by IFRS 7 if it
discloses information about the estimated timing of the net cash outflows
resulting from recognised insurance liabilities instead. This may take the form
of an analysis, by estimated timing, of the amounts recognised in the
statement of financial position rather than gross undiscounted cash flows; and
(ii) if an alternative method to manage sensitivity to market conditions, such as
an embedded value analysis is used, an insurer may use that sensitivity
analysis to meet the requirements of IFRS 7. However, disclosures are still
required explaining the methods used in preparing that alternative analysis,
its main parameters and assumptions, and an explanation of the objectives of
the method and of its limitations; and
(d) information about exposures to market risk arising from embedded derivatives
contained in a host insurance contract if the insurer is not required to, and does
not, measure the embedded derivatives at fair value. [IFRS 4.39].
These disclosures are based on two foundations:
(a) there should be a balance between quantitative and qualitative disclosures, enabling
users to understand the nature of risk exposures and their potential impact; and
(b) disclosures
should
be consistent with how management perceives its activities and
risks, and the objectives, policies and processes that management uses to manage
those risks so that they:
(i) generate information that has more predictive value than information based
on assumptions and methods that management does not use, for example, in
considering the insurer’s ability to react to adverse situations; and
(ii) are more effective in adapting to the continuing change in risk measurement
and management techniques and developments in the external environment
over time. [IFRS 4.IG41].
In developing disclosures to satisfy the requirements, it might be useful to group insurance
contracts into broad classes appropriate for the nature of the information to be disclosed,
4394 Chapter 51
taking into account matters such as the risks covered, the characteristics of the contracts
and the measurement basis applied. These broad classes may correspond to classes
established for legal or regulatory purposes, but IFRS 4 does not require this. [IFRS 4.IG42].
Under IFRS 8 – Operating Segments – the identification of operating segments reflects
the way in which management allocates resources and assesses performance. It might
be useful to adopt a similar approach to identify broad classes of insurance contracts for
disclosure purposes, although it might be appropriate to disaggregate disclosures down
to the next level. For example, if life insurance is identified as an operating segment for
IFRS 8, it might be appropriate to report separate information about, say, life insurance,
annuities in the accumulation phase and annuities in the payout phase. [IFRS 4.IG43].
In identifying broad classes for separate disclosure, it is useful to consider how best to
indicate the level of uncertainty associated with the risks underwritten, so as to inform
users whether outcomes are likely to be within a wider or a narrower range. For example,
an insurer might disclose information about exposures where there are significant