For example, at the end of 2015, the insurer estimated that it would pay claims of CU680 for insured events
relating to insurance contracts underwritten in 2015. By the end of 2016, the insurer had revised the estimate
of cumulative claims (both those paid and those still to be paid) to CU673.
The lower half of the table reconciles the cumulative claims to the amount appearing in the statement of
financial position. First, the cumulative payments are deducted to give the cumulative unpaid claims for each
year on an undiscounted basis. Second, if the claims liabilities are discounted, the effect of discounting is
deducted to give the carrying amount in the statement of financial position.
Underwriting year
2015
2016
2017
2018 2019 Total
CU
CU
CU
CU
CU
CU
Estimate of cumulative claims:
At end of underwriting year 680
790
823
920
968
One year later 673
785
840
903
Two years later 692
776
845
Three years later
697
771
Four years later
702
Estimate of cumulative claims
702
771
845
903
968
Cumulative payments
(702)
(689)
(570)
(350)
(217)
–
82
275
553 751
1,661
Effect of discounting
–
(14)
(68)
(175) (285) (542)
Present value recognised in the statement of
financial position
–
68
207
378 466
1,119
The example appears to be gross of reinsurance but IFRS 4 is silent on whether
development information should be given on both a gross basis and a net basis. If the
effect of reinsurance is significant it would seem appropriate to provide such
information both gross and net of reinsurance.
The illustrative example also provides only five years of data although the standard itself
requires ten (subject to the transitional relief upon first-time adoption). Given the long
tail nature of many non-life insurance claims liabilities it is likely that many non-life
Insurance contracts (IFRS 4) 4405
insurers will still have claims outstanding at the reporting date that are more than ten
years old and which will need to be included in a reconciliation of the development
table to the statement of financial position.
IFRS 4 is also silent on the presentation of:
• exchange differences associated with insurance liabilities arising on retranslation;
• claims liabilities acquired in a business combination or portfolio transfer; and
• claims liabilities disposed of in a business combination or portfolio transfer.
As IFRS 4 is silent on these matters, a variety of treatments would appear to be
permissible provided they are adequately explained to the users of the financial
statements and consistently applied in each reporting period. For example, exchange
rates could be fixed at the date the claims are incurred, the original reporting period
dates or amounts could be retranslated at each reporting date. Claims liabilities acquired
in a business combination or portfolio transfer could be reallocated to the prior
reporting periods in which they were originally incurred by the acquiree or all liabilities
could be allocated to the reporting period in which the acquisition/portfolio transfer
occurred.
Aviva’s loss (claims) development tables are shown below (although, for brevity, the
extract illustrates only six years of data). These are presented on an accident year basis.
Aviva discloses both gross and net insurance liabilities in this format.
Extract 51.31: Aviva plc (2016)
Notes to the consolidated financial statements [extract]
40 – Insurance liabilities [extract]
(d) Loss development tables [extract]
(i) Description of tables
The tables that follow present the development of claim payments and the estimated ultimate cost of claims for the
accident years 2007 to 2016. The upper half of the tables shows the cumulative amounts paid during successive years
related to each accident year. For example, with respect to the accident year 2007, by the end of 2016 £8,278 million
had actually been paid in settlement of claims. In addition, as reflected in the lower section of the table, the original estimated ultimate cost of claims of £8,530 million was re-estimated to be £8,380 million at 31 December 2016.
The original estimates will be increased or decreased, as more information becomes known about the individual claims
and overall claim frequency and severity.
The Group aims to maintain reserves in respect of its general insurance and health business that protect against adverse future claims experience and development. The Group establishes reserves in respect of the current accident year (2016), where the development of claims is less mature, that allow for the greater uncertainty attaching to the ultimate cost of current accident year claims. As claims develop and the ultimate cost of claims become more certain, the absence of adverse claims experience will result in a release of reserves from earlier accident years, as shown in the loss development tables and movements table (c)(iv) above. Releases from prior accident year reserves are also due to an improvement in the estimated cost of claims.
Key elements of the release from prior accident year general insurance and health net provisions during 2016 were:
• £208 million strengthening from UK & Ireland due to the impact of the change in the Ogden discount rate in the
UK partly offset by other favourable developments on personal motor and commercial liability claims.
• £154 million release from Canada mainly due to continued favourable experience on motor, following the
legislative changes in Ontario.
• £90 million release from Europe mainly due to favourable development in France and Italy.
There was also a £78 million reduction in net claim reserves relating to an outwards reinsurance contract completed
by the UK General Insurance business.
4406 Chapter 51
(ii) Gross
figures
Before the effect of reinsurance, the loss development table is:
All
prior
years [...] 2011 2012 2013 2014 2015 2016
Total
Accident
year
£m [...] £m £m £m £m £m £m £m
Gross cumulative claim payments
At end of accident year
(3,420)
(3,055)
(3,068)
(3,102)
(2,991) (3,534)
One
year
later
(4,765)
(4,373)
(4,476)
(4,295)
(4,285)
Two years later
(5,150)
(4,812)
(4,916)
(4,681)
Three
years
later
(5,457)
(5,118)
(5,221)
Four
years
later
(5,712)
(5,376)
Five
years
later (5,864)
[...]
Estimate of gross ultimate claims
At end of accident year
6,428
6,201
6,122
5,896
5,851
6,947
One
year
later
6,330 6,028 6,039 5,833 5,930
Two years later
6,315
6,002
6,029
5,865
Three
years
later
6,292
5,952
6,067
Four
years
later
6,262
6,002
Five
years
later 6,265
[...]
All
prior
years [...] 2011 2012 2013 2014 2015 2016
Total
Accident
year
£m [...] £m £m £m £m £m £m £m
Estimate of gross ultimate claims
6,265
6,002
6,067
5,865
5,930
6,947
Cumulative payments
(5,864)
(5,376)
(5,221)
(4,681)
(4,285) (3,534)
2,568
401 626 846 1,184 1,645 3,413 11,465
Effect of discounting
(400)
(2)
1
(3)
–
–
–
(487)
Present
value
2,168
399 627 843 1,184 1,645 3,413 10,978
Cumulative effect of
foreign exchange
movements –
(3)
5
22
64
176
–
263
Effect of acquisitions
73
39
33
46
61
68
41
468
Present value recognised
in the statement of
financial
position
2,241
435 665 911 1,309 1,889 3,454 11,709
(iii)
Net of reinsurance
After the effect of reinsurance, the loss development table is:
All
prior
years [...]
2011 2012 2013 2014 2015 2016 Total
Accident
year
£m
£m £m £m £m £m £m £m
Net cumulative claim payments
At end of accident year
(3,300)
(2,925)
(2,905)
(2,972)
(2,867) (3,309)
One
year
later (4,578)
(4,166)
(4,240)
(4,079)
(4,061)
Two years later
(4,963)
(4,575)
(4,649)
(4,432)
Three
years
later
(5,263)
(4,870)
(4,918)
Four
years
later
(5,485)
(5,110)
Five
years
later
(5,626)
[...]
Insurance contracts (IFRS 4) 4407
Estimate of net ultimate claims
At end of accident year
6,202
5,941
5,838
5,613
5,548
6,489
One
year
later 6,103
5,765
5,745
5,575
5,635
Two years later
6,095
5,728
5,752
5,591
Three
years
later
6,077
5,683
5,733
Four
years
later
6,034
5,717
Five
years
later
6,005
[...]
Estimate of net ultimate claims
6,005
5,717
5,733
5,591
5,635
6,489
Cumulative payments
(5,626)
(5,110)
(4,918)
(4,432)
(4,061) (3,309)
928
379 607 815 1,159 1,574 3,180 9,377
Effect of discounting
(191)
3
1
3
–
–
–
(249)
Present
value
737
382 608 818 1,159 1,574 3,180 9,128
Cumulative effect of
foreign exchange
movements –
(3)
5
22
62
170
–
254
Effect of acquisitions
61
39
33
46
61
68
26
442
Present value recognised
in the statement of
financial position
798
418 646 886 1,282 1,812 3,206 9,824
In the loss development tables shown above, the cumulative claim payments and estimates of cumulative claims
for each accident year are translated into sterling at the exchange rates that applied at the end of that accident
year. The impact of using varying exchange rates is shown at the bottom of each table. Disposals are dealt with
by treating all outstanding and IBNR claims of the disposed entity as “paid” at the date of disposal.
The loss development tables above include information on asbestos and environmental pollution claims provisions
from business written before 2007. The undiscounted claim provisions, net of reinsurance, in respect of this business
at 31 December 2016 were £134 million (2015: £237 million). The movement in the year reflects a reduction of
£78 million due to the reinsurance contract completed by the UK General Insurance business covering a proportion
of these liabilities, favourable claims development of £34 million, claim payments net of reinsurance recoveries and
foreign exchange rate movements.
11.2.6
Credit risk, liquidity risk and market risk disclosures
As noted at 11.2 above, IFRS 4 also requires disclosure of 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. [IFRS 4.39(d)].
Such disclosure should include:
• summary quantitative data about exposure to those risks based on information
provided internally to key management personnel; and
• to the extent not already covered by the disclosures discussed above, the
information required by IFRS 7.
4408 Chapter 51
IFRS 7 allows disclosures about credit risk, liquidity risk and market risk to be either
provided in the financial statements or incorporated by cross-reference to
some other
statement, such as a management commentary or risk report, that is available to users
of the financial statements on the same terms as the financial statements and at the same
time. This approach is also permitted for the equivalent disclosures about insurance
contracts. [IFRS 4.IG62].
To be informative, the disclosure about credit risk, liquidity risk and market risk
might include:
(a) information about the extent to which features such as policyholder participation
features might mitigate or compound those risks;
(b) a summary of significant guarantees, and of the levels at which guarantees of
market prices or interest rates are likely to alter cash flows; and
(c) the basis for determining investment returns credited to policyholders, such as
whether the returns are fixed, based contractually on the return of specified assets
or partly or wholly subject to the insurer’s discretion. [IFRS 4.IG64].
11.2.6.A
Credit risk disclosures
Credit risk is defined in IFRS 7 as ‘the risk that one party to a financial instrument will
fail to discharge an obligation and cause the other party to incur a financial loss’.
For a reinsurance contract, credit risk includes the risk that the insurer incurs a financial
loss because a reinsurer defaults on its obligations under a reinsurance contract.
Furthermore, disputes with reinsurers could lead to impairments of the cedant’s
reinsurance assets. The risk of such disputes may have an effect similar to credit risk.
Thus, similar disclosure might be relevant. Balances due from agents or brokers may
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 872
