2.2 Definitions
............................................................................................................
4431
2.3 Scope
....................................................................................................................
4433
2.3.1
Transactions not within the scope of IFRS 17 ............................. 4435
2.3.1.A
Product warranties ....................................................... 4435
2.3.1.B
Assets and liabilities arising from employment
benefit plans ................................................................... 4436
2.3.1.C
Contingent contractual rights and obligations
related to non-financial items ...................................... 4436
2.3.1.D Residual
value guarantees ........................................... 4436
2.3.1.E Financial
guarantee contracts .................................... 4436
2.3.1.F
Contingent consideration payable or
receivable in a business combination ....................... 4438
2.3.1.G
Direct insurance contracts in which the entity
is the policyholder ........................................................ 4438
2.3.2
Fixed fee service contracts .............................................................. 4438
3 THE DEFINITION OF AN INSURANCE CONTRACT .................................... 4440
3.1
The definition ..................................................................................................... 4440
3.2 Significant
insurance risk .................................................................................. 4441
3.2.1
Quantity of insurance risk ................................................................ 4442
3.2.2
The level at which significant insurance risk is assessed .......... 4443
3.2.2.A
Self insurance ................................................................ 4444
3.2.2.B Insurance mutuals ......................................................... 4444
3.2.2.C Intragroup
insurance contracts .................................. 4444
3.2.3
Significant additional amounts ........................................................ 4445
4420 Chapter 52
3.3
Changes in the level of insurance risk ........................................................... 4445
3.4 Uncertain
future events .................................................................................... 4446
3.5 Payments
in kind ............................................................................................... 4447
3.6
The distinction between insurance risk and financial risk ........................ 4447
3.6.1
Insurable interest ............................................................................... 4448
3.6.2
Lapse, persistency and expense risk .............................................. 4449
3.6.3
Insurance of non-insurance risks ................................................... 4450
3.7
Examples of insurance and non-insurance contracts ................................ 4450
3.7.1
Examples of insurance contracts .................................................... 4450
3.7.2
Examples of transactions that are not insurance contracts ...... 4452
4 SEPARATING COMPONENTS FROM AN INSURANCE CONTRACT ............ 4454
4.1
Separating embedded derivatives from an insurance contract ................ 4455
4.2
Separating investment components from an insurance contract ............ 4458
4.3
Separating a promise to provide distinct goods and non-insurance
services from insurance contracts ................................................................... 4461
5 LEVEL OF AGGREGATION .......................................................................... 4463
5.1
Identifying portfolios ........................................................................................ 4463
5.1.1
Separation of insurance components within an insurance
contract ................................................................................................ 4464
5.1.2
Combining insurance contracts ...................................................... 4465
5.2
Identifying groups according to expected profitability ............................. 4466
5.2.1
‘Cohorts’ .............................................................................................. 4468
5.3
Identifying groups for contracts applying the premium allocation
approach .............................................................................................................. 4469
6 INITIAL RECOGNITION ............................................................................... 4470
7 MEASUREMENT – OVERVIEW .................................................................... 4471
7.1
Overview of the general model ...................................................................... 4472
7.2 Modifications
to
the general model ................................................................ 4473
7.3 Insurance
contracts
in a foreign currency ..................................................... 4473
8 MEASUREMENT – GENERAL MODEL ........................................................ 4474
8.1
The contract boundary ...................................................................................... 4475
8.1.1
Options to add insurance coverage ............................................... 4479
8.1.2
Constraints or limitations relevant in assessing repricing ......... 4479
8.1.3
Acquisition cash flows paid on an initially written contract ..... 4480
8.1.4 Contract
boundary
issues
related to reinsurance contracts
held ........................................................................................................ 4481
8.2
Estimates of expected future cash flows ........................................................ 4481
8.2.1
Cash flows within the contract boundary .................................... 4484
Insurance contracts (IFRS 17) 4421
8.2.1.A
Premium cash flows ..................................................... 4485
8.2.1.B
Payments to (or on behalf of) a policyholder .......... 4485
8.2.1.C
Payments to (or on behalf of) a policyholder
that vary depending on returns on underlying
items ................................................................................ 4485
8.2.1.D
Payments to (or on behalf of) a policyholder
resulting from derivatives ............................................ 4485
8.2.1.E
Insurance acquisition cash flows ............................... 4486
8.2.1.F Claims
handling costs ................................................... 4486
8.2.1.
G
Costs incurred in providing contractual
benefits in kind .............................................................. 4486
8.2.1.H
Policy administration and maintenance costs ......... 4486
8.2.1.I Transaction-based taxes ............................................. 4487
8.2.1.J
Payments by the insurer in a fiduciary capacity ..... 4487
8.2.1.K Potential
inflows
from recoveries ............................. 4487
8.2.1.L
An allocation of fixed and variable overheads ....... 4487
8.2.1.M
Any other costs .............................................................. 4488
8.2.2
Cash flows excluded from the contract boundary...................... 4488
8.2.3
Market and non-market variables .................................................. 4488
8.2.3.A
Market variables ............................................................ 4488
8.2.3.B Non-market
variables
..................................................
4490
8.2.4
Using current estimates ..................................................................... 4491
8.3
Discount rates ..................................................................................................... 4492
8.4
The risk adjustment for non-financial risk ................................................... 4498
8.5
The contractual service margin ....................................................................... 4501
8.6 Subsequent
measurement
................................................................................
4502
8.6.1
The liability for remaining coverage ............................................. 4502
8.6.2
Subsequent measurement of the contractual service
margin (for insurance contracts without direct
participation features) ....................................................................... 4503
8.6.3
The liability for incurred claims ..................................................... 4505
8.7
Allocation of the contractual service margin to profit or loss .................. 4507
8.7.1
Determining the quantity of benefits for identifying
coverage units .................................................................................... 4509
8.7.2
Do services provided by an insurance contract include
investment-related services? ............................................................ 4513
8.8
Measurement of onerous contracts ................................................................ 4513
8.9 Reinsurance
contracts issued ........................................................................... 4516
8.9.1
The boundary of a reinsurance contract issued ........................... 4516
8.9.2
Issued adverse loss development covers ....................................... 4516
8.9.3
Determining the quantity of benefits for identifying
coverage units ..................................................................................... 4517
4422 Chapter 52
8.10 Insurance contracts issued by mutual entities .............................................. 4518
8.11 Other
matters ....................................................................................................... 4519
8.11.1
Impairment of insurance receivables ............................................. 4519
8.11.2 Policyholder loans .............................................................................. 4519
9 MEASUREMENT – PREMIUM ALLOCATION APPROACH .......................... 4520
9.1
Criteria for use of the premium allocation approach ................................. 4522
9.1.1
Main sources of difference between the premium
allocation approach and the general approach ........................... 4524
9.1.1.A
Changing expectations of profitability for the
remaining coverage ...................................................... 4524
9.1.1.B
Changing interest rates ................................................ 4524
9.1.1.C
Uneven revenue recognition patterns ...................... 4525
9.1.2
Applying materiality for the premium allocation approach
eligibility assessment ......................................................................... 4525
9.2
Initial measurement ........................................................................................... 4526
9.3
Subsequent measurement – liability for remaining coverage ................... 4527
9.4
Subsequent measurement – liability for incurred claims .......................... 4529
10 MEASUREMENT – REINSURANCE CONTRACTS HELD ............................. 4530
10.1 Level of aggregation .......................................................................................... 4532
10.2 The boundary of a reinsurance contract held ............................................. 4532
10.3 Initial
recognition
..............................................................................................
4533
10.4 Measurement – initial recognition ................................................................. 4535
10.5 Subsequent
measurement
.................................................................................
4537
10.6 Allocation of the contractual service margin to profit or loss .................. 4540
10.7 Premium allocation approach for reinsurance contracts held .................. 4541
10.8 Reinsurance contracts held and the variable fee approach ....................... 4541
11 MEASUREMENT – CONTRACTS WITH PARTICIPATION FEATURES ....... 4542
11.1
Contracts with cash flows that affect or are affected by cash flows
to policyholders of other contracts (mutualisation) .................................... 4544
11.2 Insurance contracts with direct participation features .............................. 4545
11.2.1
Definition of an insurance contract with direct
participation features ........................................................................ 4546
11.2.2
Measurement of the contractual service margin using the
variable fee approach ....................................................................... 4549
11.2.3
Coverage period for insurance contracts with direct
participation features .......................................................................... 4551
11.2.4 Risk
mitigation
.................................................................................... 4552
11.2.5
Disaggregation of finance income or expense between
profit or loss and other comprehensive income ......................... 4553
Insurance contracts (IFRS 17) 4423
11.3 Investment contracts with discretionary participation features .............. 4553
11.3.1
Contracts with switc
hing features .................................................. 4555
12 MODIFICATION AND DERECOGNITION .................................................... 4555
12.1 Modification of an insurance contract .......................................................... 4555
12.2 Derecognition of an insurance contract ........................................................ 4556
12.3 Accounting
for
derecognition
..........................................................................
4557
12.3.1
Derecognition resulting from extinguishment .............................. 4557
12.3.2
Derecognition resulting from transfer ........................................... 4558
12.3.3
Derecognition resulting from modification .................................. 4558
12.3.4
Contracts applying the premium allocation approach that
are derecognised ................................................................................ 4559
13 ACQUISITIONS OF INSURANCE CONTRACTS ............................................ 4559
13.1 Subsequent treatment of contracts acquired in their settlement
period ................................................................................................................... 4563
13.2 Business combinations under common control .......................................... 4564
13.3 Practical
issues ................................................................................................... 4564
13.3.1
The difference between a business combination and a
transfer ................................................................................................. 4564
13.3.2 Deferred
taxation
..............................................................................
4565
13.3.3
Customer lists and relationships not connected to
contractual insurance contracts ...................................................... 4565
14 PRESENTATION IN THE STATEMENT OF FINANCIAL POSITION ............. 4565
15 PRESENTATION IN THE STATEMENT OF FINANCIAL PERFORMANCE .... 4567
15.1 Insurance revenue ............................................................................................. 4568
15.1.1
Insurance revenue related to the provision of services in a
period ................................................................................................... 4569
15.1.2
Revenue under the premium allocation approach ..................... 4570
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 875
