15.1.3
Revenue and expense from reinsurance contracts held ............ 4571
15.2 Insurance service expenses .............................................................................. 4571
15.3 Insurance finance income or expenses .......................................................... 4572
15.3.1
Allocating insurance finance income or expenses for
contracts for which the entity does not hold the
underlying items ................................................................................. 4573
15.3.2
Allocating insurance finance income or expenses for
incurred claims when applying the premium allocation
approach ............................................................................................... 4575
15.3.3
Allocating finance income or expenses for insurance
contracts with direct participation features for which the
entity holds the underlying items .................................................... 4575
4424 Chapter 52
15.4 Reporting the contractual service margin in interim financial
statements ............................................................................................................ 4576
15.5 Changes in accounting policies and accounting estimates ......................... 4577
16 DISCLOSURE ............................................................................................... 4578
16.1 Explanation of recognised amounts ................................................................ 4579
16.1.1
Reconciliations required for contracts applying the
general model ..................................................................................... 4580
16.1.2
Reconciliations required for contracts applying the
premium allocation approach ......................................................... 4584
16.1.3
Disclosure of accounting policies – general ................................ 4585
16.1.4 Accounting
policies
adopted for contracts applying the
premium allocation approach ......................................................... 4586
16.1.5
Insurance finance income or expenses ......................................... 4586
16.1.6 Transition amounts ............................................................................4587
16.2 Significant judgements in applying IFRS 17 .................................................. 4588
16.3 Nature and extent of risks arising from contracts within the scope
of IFRS 17 ............................................................................................................. 4589
16.3.1
Concentrations of risk ....................................................................... 4591
16.3.2
Insurance and market risks – sensitivity analysis ....................... 4592
16.3.3
Insurance risk – claims development ........................................... 4593
16.3.4
Credit risk – other information ...................................................... 4594
16.3.5
Liquidity risk – other information ................................................. 4595
16.3.6 Regulatory
disclosures ...................................................................... 4595
16.3.7
Disclosures required by IFRS 7 and IFRS 13 ................................ 4596
16.3.8 Key
performance
indicators
............................................................
4596
17 EFFECTIVE DATE AND TRANSITION ......................................................... 4597
17.1 Effective date ....................................................................................................... 4597
17.2 Transition ............................................................................................................. 4597
17.2.1
Disclosures about the effect of transition ..................................... 4600
17.3 The modified retrospective approach ........................................................... 4601
17.3.1
Assessments at inception or initial recognition ........................... 4602
17.3.2
The contractual service margin or loss component for
groups of insurance contracts without direct participation
features ................................................................................................ 4603
17.3.3
The contractual service margin or loss component for
groups of insurance contracts with direct participation
features ................................................................................................ 4605
17.3.4
Insurance finance income or expenses ......................................... 4607
17.3.4.A
Groups of insurance contracts that include
contracts issued more than one year apart .............. 4607
Insurance contracts (IFRS 17) 4425
17.3.4.B
Groups of insurance contracts that do not
include contracts issued more than one year
apart ................................................................................. 4608
17.4 The fair value approach ................................................................................... 4608
17.5 Redesignation of financial assets – where IFRS 9 has previously
been applied ....................................................................................................... 4610
17.6 Entities that have not previously applied IFRS 9 ......................................... 4612
18 FUTURE DEVELOPMENTS .......................................................................... 4612
List of examples
Example 52.1:
Deferred annuity with policyholder election .............................. 4446
Example 52.2:
Residual value insurance .................................................................. 4448
Example 52.3:
Contract with life contingent annuity linked to price index .... 4448
Example 52.4:
Reinsurance contract with ‘original loss warranty’ clause ........ 4449
Example 52.5:
Insurance of non-insurance risks ................................................... 4450
Example 52.6:
Guarantee fund established by contract ........................................ 4451
Example 52.7:
No market value adjustment for maturity benefits ...................... 4451
Example 52.8:
No market value adjustment for death benefits .......................... 4452
Example 52.9:
Investment contract linked to asset pool ...................................... 4453
Example 52.10:
Guarantee fund established by law ................................................ 4453
Example 52.11:
Right to recover future premiums .................................................. 4453
Example 52.12:
Market value adjustment without death or maturity
benefits ................................................................................................ 4454
Example 52.13:
Death or annuitisation benefit linked to equity prices or
index ............................................
......................................................... 4458
Example 52.14:
Policyholder option to surrender contract for value based
on a market index .............................................................................. 4458
Example 52.15:
Separating components from a life insurance contract with
an account balance ............................................................................ 4460
Example 52.16:
Separating components from a stop-loss contract with
claims processing services ............................................................... 4462
Example 52.17:
Determining the date of recognition of a group of
insurance contracts (1) ...................................................................... 4470
Example 52.18:
Determining the date of recognition of a group of
insurance contracts (2) ...................................................................... 4470
Example 52.19:
Determining the date of recognition of a group of
insurance contracts (3) ....................................................................... 4471
Example 52.20:
Contract boundary of a stepped premium life insurance
contract ................................................................................................. 4477
Example 52.21:
Contract boundary of a level premium life insurance
contract ................................................................................................ 4478
4426 Chapter 52
Example 52.22:
Credit life loan insurance .................................................................. 4510
Example 52.23:
Credit life product with variable amount of cover ...................... 4510
Example 52.24:
Mortgage loss cover ........................................................................... 4511
Example 52.25:
Product warranty ................................................................................ 4511
Example 52.26:
Extended product warranty ............................................................. 4511
Example 52.27:
Health cover ........................................................................................ 4511
Example 52.28:
Transaction liability ........................................................................... 4511
Example 52.29:
Combination of different types of cover ....................................... 4512
Example 52.30:
Life contingent annuity ..................................................................... 4512
Example 52.31:
Forward purchase of fixed rate annuity ........................................ 4512
Example 52.32:
Application of the loss component for a group of onerous
contracts ............................................................................................... 4515
Example 52.33:
Proportional reinsurance issued ...................................................... 4517
Example 52.34:
Reinsurance adverse development of claims with claim
limit ........................................................................................................ 4517
Example 52.35:
Reinsurance adverse development of claims without claim
limit ........................................................................................................ 4518
Example 52.36:
Measurement at initial recognition of a group of insurance
contracts using the premium allocation approach ....................... 4527
Example 52.37:
Subsequent measurement of a group of insurance
contracts using the premium allocation approach ...................... 4529
Example 52.38:
Subsequent measurement of the liability for incurred
claims using the premium allocation approach ........................... 4530
Example 52.39:
Recognition of reinsurance contract held providing
proportionate coverage .................................................................... 4534
Example 52.40:
Recognition of reinsurance contract held which does not
provide proportionate coverage ..................................................... 4534
Example 52.41:
Measurement on initial recognition of groups of
reinsurance contracts held .............................................................. 4536
Example 52.42:
Measurement subsequent to initial recognition of groups
of reinsurance contracts held .......................................................... 4538
Example 52.43:
Unitised with-profits policy ............................................................ 4543
Example 52.44:
Participation policy with minimum interest rates ...................... 4543
Example 52.45:
Insurance services and investment component with
different durations .............................................................................. 4551
Example 52.46:
Contract derecognition resulting from modification ................. 4559
Example 52.47:
Measurement on initial recognition of insurance contracts
acquired in a transfer (that is not a business combination)
from another entity .............................................................................. 4561
Example 52.48:
Measurement on initial recognition of insurance contracts
acquired in a business combination ............................................... 4562
Example 52.49:
Purchase of portfolio of one-year motor insurance
contracts .............................................................................................. 4565
Insurance contracts (IFRS 17) 4427
Example 52.50:
Allocating a portion of premiums to insurance acquisition
cash flows ............................................................................................ 4570
Example 52.51:
The contractual service margin and interim reporting ............... 4577
Example 52.52:
Disclosure of claims development ................................................. 4593
Example 52.53:
Measurement of groups of insurance contracts without
direct participation features applying the modified
retrospective approach ...................................................................... 4604
Example 52.54:
Measurement of groups of insurance contracts with direct
participation features applying the modified retrospective
approach .............................................................................................. 4606
4428 Chapter 52
4429
Chapter 52
Insurance contracts
(IFRS 17)
1 INTRODUCTION
The IASB issued IFRS 17 – Insurance Contracts – in May 2017. IFRS 17 establishes
principles for the recognition, measurement, presentation and disclosure of insurance
contracts issued, reinsurance contracts held and investment contracts with
discretionary participation features issued.
The previous IFRS standard on insurance contracts, IFRS 4 – Insurance Contracts, was
&nb
sp; an interim standard that allowed entities to use a wide variety of accounting practices for
insurance contracts, reflecting national accounting requirements and variations of those
requirements. The IASB had always intended to replace IFRS 4. The differences in
accounting treatment across jurisdictions and practices have made it difficult for investors
and analysts to understand and compare insurers’ results. Most stakeholders agreed on
the need for a common global insurance accounting standard even though opinions varied
as to what it should be. Long-term and complex insurance risks are difficult to reflect in
the measurement of insurance contracts. In addition, insurance contracts are subject to
several measurement challenges. Some previous accounting practices under IFRS 4 did
not adequately reflect the true underlying financial position or the financial performances
of these insurance contracts. [IFRS 17.IN4]. IFRS 4 is discussed in Chapter 51.
IFRS 17 reflects the Board’s view that an insurance contract combines features of both
a financial instrument and a service contract. In addition, many insurance contracts
generate cash flows with substantial variability over a long period. To provide useful
information about these features the Board developed an approach that: [IFRS 17.IN5]
• combines current measurement of the future cash flows with the recognition of
profit over the period services are provided under the contract;
• presents insurance service results (including presentation of insurance revenue)
separately from insurance finance income or expenses; and
• requires an entity to make an accounting policy choice portfolio-by-portfolio of
whether to recognise all insurance finance income or expense for the reporting
period in profit or loss or to recognise some of that income or expense in other
comprehensive income.
4430 Chapter 52
The measurement required by IFRS 17 results in: [IFRS 17.IN7]
• the liability for a group of insurance contracts relating to performance obligations
for remaining service being measured broadly consistent with IFRS 15 – Revenue
from Contracts with Customers – except that:
• the measurement is updated for changes in financial assumptions (to differing
degrees depending on the type of insurance contract); and
• the liability often includes an investment component typically not in contracts
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 876
