• the contractual service margin.
Within these reconciliations, an entity should disclosure the following amounts related
to insurance services, if applicable: [IFRS 17.104]
• changes in the carrying amount of the contractual margin that relate to future
service, showing separately:
• changes in estimates that adjust the contractual service margin;
• changes in estimates that do not adjust the contractual service margin, i.e.
losses on groups of onerous contracts and reversals of such losses; and
• the effects of contracts initially recognised in the period.
4582 Chapter 52
• changes that relate to current service, i.e.:
• the amount of the contractual service margin recognised in profit or loss to
reflect the transfer of services;
• the change in the risk adjustment for non-financial risk that does not relate to
future service or past service; and
• experience adjustments; and
• changes that relate to past service, i.e. changes in fulfilment cash flows relating to
incurred claims.
Below is an example of these reconciliations, based on an illustrative disclosure in the
IASB’s IFRS 17 Effects Analysis.
Figure 52.3
Movements in insurance contract liabilities analysed by components.
Estimates
of
the present
value of
Contractual
future cash
Risk
service
flows
adjustment
margin Total
Insurance contract liabilities 2020
163,962
5,998
8,858
178,818
Changes that relate to current
35
(604)
(923) (1,492)
service
Contractual service margin
–
–
(923) (923)
recognised for service period
Risk adjustment recognised for the
–
(604)
– (604)
risk expired
Experience adjustments
35
–
– 35
Changes that relate to future service
(784)
1,117
(116)
217
Contracts initially recognised in the
(2,239)
1,077
1,375 123
period
Changes in estimates reflected in
1,452
39
(1,491) –
the contractual service margin
Changes in estimates that result in
93
1
– 94
onerous contract losses
Changes that relate to past service
47
(7)
–
40
Adjustments to liabilities for
47
(7)
– 40
incurred claims
Insurance service result
(702)
506
(1,039)
(1,235)
Insurance finance expenses
9,087
–
221 9,308
Total changes in the statement of
8,385
506
(818) 8,073
comprehensive income
Cash flows
18,833
–
– 18,833
Insurance contract liabilities 2021
191,180
6,504
8,040
205,724
In addition, to complete the reconciliations above, an entity should also disclose
separately each of the following amounts that relate to insurance services provided in
the period, if applicable: [IFRS 17.105]
Insurance contracts (IFRS 17) 4583
• cash flows in the period, including:
• premiums received for insurance contracts issued (or paid for reinsurance
contracts held);
• insurance acquisition cash flows; and
• incurred claims paid and other insurance service expenses paid for insurance
contracts issued (or recovered under reinsurance contracts held), excluding
insurance acquisition cash flows;
• the effect of changes in the risk of non-performance by the issuer of reinsurance
contracts held;
• insurance finance income or expenses; and
• any additional line items that may be necessary to understand the change in the
net carrying amount of the insurance contracts.
Entities need to provide the following analysis of insurance revenue recognised in the
period: [IFRS 17.106]
• the amounts relating to the changes in the liability for remaining coverage as
discussed at 15.1.1 above, separately disclosing:
• the insurance service expenses incurred during the period;
• the change in the risk adjustment for non-financial risk; and
• the amount of the contractual service margin recognised in profit or loss
because of the transfer of services in the period; and
• the allocation of the portion of the premiums that relate to the recovery of
insurance acquisition cash flows.
Below is an example of this analysis, based on an illustrative disclosure in the IASB’s
IFRS 17 Effects Analysis.
Figure 52.4
Analysis of insurance revenue.
20X1
Amounts related to liabilities for remaining coverage
8,597
Expected incurred claims and other expenses
7,070
Contractual service margin for the service provided
923
Risk
adjustment
for the risk expired
604
Recovery of acquisition cash flows
1,259
Insurance revenue
9,856
The effect on the statement of financial position for insurance contracts issued and
reinsurance contracts held that are initially recognised in the period should be shown
separately, disclosing the effect at initial recognition on: [IFRS 17.107]
• the estimates of the present value of future cash outflows, showing separately the
amount of the insurance acquisition cash flows;
• the estimates of the present value of future cash inflows;
• the risk adjustment for non-financial risk; and
• the contractual service margin.
4584 Chapter 52
In the reconciliation showing the effect of insurance contracts issued and reinsurance
contracts held, there should be separate disclosure of: [IFRS 17.108]
• contracts acquired from other entities in transfers of insurance contracts or
business combinations; and
• groups of contracts that are onerous.
Below is an example of this analysis, based on an illustrative disclosure in the IASB’s
IFRS 17 Effects Analysis. The example shows insurance contracts issued only for an entity
which has not acquired contracts in the period via transfers or business combinations.
Figure 52.5
Analysis of contracts initially recognised in the period.
Contracts initially recognised in 20X1
Of which
Of which
contracts
onerous
acquired
contracts
Est
imates of the present value of futures
(33,570)
(19,155)
(1,716)
cash inflows
Estimates of the present value of future
(8,489)
cash outflows
Insurance acquisition cash flows
401
122
27
Claims payable and other expenses
30,840
17,501
1,704
Risk adjustment
1,077
658
108
Contractual service margin
1,375
896
–
Total
123
22
123
Additionally, an entity should disclose an explanation of when it expects to recognise
the contractual service margin remaining at the end of the reporting period in profit or
loss, either quantitatively in appropriate time bands, or by providing qualitative
information. Such information should be provided separately for insurance contracts
issued and reinsurance contracts held. [IFRS 17.109].
16.1.2
Reconciliations required for contracts applying the premium
allocation approach
These reconciliations apply to contracts using the premium allocation approach (most
also apply for contracts using the general model – see 16.1.1 above).
Overall reconciliations from the opening to the closing balances separately for each of:
[IFRS 17.100]
• the net liabilities (or assets) for the remaining coverage component, excluding any
loss component;
• any loss component (see 8.8 above); and
• the liabilities for incurred claims with separate reconciliations for:
• the estimates of the present value of the future cash flows; and
• the risk adjustment for non-financial risk.
Insurance contracts (IFRS 17) 4585
Within the overall reconciliations above, separate disclosure of each of the following
amounts related to insurance services, if applicable: [IFRS 17.103]
• insurance revenue;
• insurance service expenses, showing separately:
• incurred claims (excluding investment components) and other incurred
insurance service expenses;
• amortisation of insurance acquisition cash flows;
• changes that relate to past service, i.e. changes in fulfilment cash flows relating
to the liability for incurred claims; and
• changes that relate to future service, i.e. losses on onerous groups of contracts
and reversals of such losses; and
• investment components excluded from insurance revenue and insurance service
expenses.
Disclosure of each of the following amounts that relate to insurance services provided
in the period, if applicable: [IFRS 17.105]
• cash flows in the period, including:
• premiums received for insurance contracts issued (or paid for reinsurance
contracts held);
• insurance acquisition cash flows; and
• incurred claims paid and other insurance service expenses paid for insurance
contracts issued (or recovered under reinsurance contracts held), excluding
insurance acquisition cash flows;
• the effect of changes in the risk of non-performance by the issuer of reinsurance
contracts held;
• insurance finance income or expenses; and
• any additional line items that may be necessary to understand the change in the
net carrying amount of the insurance contracts.
16.1.3
Disclosure of accounting policies – general
Unlike IFRS 4, IFRS 17 does not contain an explicit requirement for an insurer’s
accounting policies for insurance contracts and related liabilities, income and expense
to be disclosed. However, IAS 1 requires an entity to disclose its significant accounting
policies comprising: [IAS 1.117]
• the measurement basis (or bases) used in preparing the financial statements; and
• the other accounting policies used that are relevant to an understanding of the
financial statements.
4586 Chapter 52
16.1.4
Accounting policies adopted for contracts applying the premium
allocation approach
When an entity uses the premium allocation approach it must disclose the following:
[IFRS 17.97]
• which of the criteria for the use of the premium allocation approach for insurance
contracts issued and reinsurance contracts held it has satisfied;
• whether it makes an adjustment for the time value of money and the effect of
financial risk for the liability for remaining coverage and the liability for incurred
claims; and
• whether it recognises insurance acquisition cash flows as expenses when it incurs
those costs or whether it amortises insurance acquisition cash flows over the
coverage period.
These choices are discussed at 9.1 and 9.4 above.
16.1.5
Insurance finance income or expenses
The total amount of insurance finance income or expenses in the reporting period should
be disclosed and explained. In particular, an entity should explain the relationship
between insurance finance income or expenses and the investment return on its assets, to
enable users of its financial statements to evaluate the sources of finance income or
expenses recognised in profit or loss and other comprehensive income. [IFRS 17.110].
Specifically, for contracts with direct participation features, an entity should:
• describe the composition of the underlying items and disclose their fair value;
[IFRS 17.111]
• disclose the effect of any adjustment to the contractual service margin in the
current period resulting from any choice made not to adjust the contractual service
margin to reflect some of all of the changes in the effect of financial risk on the
entity’s share of underlying items for the effect of the time value of money and
financial risks not arising from the underlying items (see 11.2.3 above); [IFRS 17.112]
• disclose, in the period when it changes the basis of disaggregation of insurance
finance income or expense between profit or loss and other comprehensive
income (see 15.3.3 above): [IFRS 17.113]
• the reason why the entity was required to change the basis of aggregation;
• the amount of any adjustment for each financial statement line item affected; and
• the carrying amount of the group of insurance contracts to which the change
applied at the date of the change.
Insurance contracts (IFRS 17) 4587
16.1.6 Transition
amounts
An entity should provide disclosures that enable users of financial statements to identify
the effect of groups of insurance contracts measured at the transition date applying the
modified retrospective approach (see 17.3 below) or the fair value approach (see 17.4
below) on the contractual service margin and insurance revenue in subsequent periods. As
a result, IFRS 17 requires various disclosures that must continue to be made each reporting
period until the contracts which exist at transition have expired or been extinguished.
Hence an entity should disclose the reconciliation of the contractual service margin and
the amount of insurance revenue
required at 16.1.1 above separately for: [IFRS 17.114]
• insurance contracts that existed at the transition date to which the entity has
applied the modified retrospective approach;
• insurance contracts that existed at the transition date to which the entity has
applied the fair value approach; and
• all other insurance contracts (i.e. including those to which the entity has accounted
for fully retrospectively).
In addition, for all periods in which disclosures are made for contracts which, on
transition, were accounted for using either the modified retrospective approach or the
fair value approach, an entity should explain how it determined the measurement of
insurance contracts at the transition date. The purpose of this is to enable users of
financial statements to understand the nature and significance of the methods used and
judgements applied in determining the transition amounts. [IFRS 17.115].
An entity that chooses to disaggregate insurance finance income or expenses between
profit or loss and other comprehensive income applies the requirements discussed at 17.3
below (for the modified retrospective approach) or 17.4 below (for the fair value approach)
to determine the cumulative difference between the insurance finance income or
expenses that would have been recognised in profit or loss and the total insurance finance
income or expenses at the transition date for the groups of insurance contracts to which
the disaggregation applies. For all periods in which amounts determined by applying these
transitional approaches exist, the entity should disclose a reconciliation from the opening
to the closing balance of the cumulative amounts included in other comprehensive
income for financial assets measured at fair value through other comprehensive income
related to the groups of insurance contracts. The reconciliation should include, for
example, gains or losses recognised in other comprehensive income in the period and
gains or losses previously recognised in other comprehensive income in previous periods
reclassified in the period to profit or loss. [IFRS 17.116].
4588 Chapter 52
16.2 Significant judgements in applying IFRS 17
IAS 1 requires that an entity should disclose the judgements that management has made
in the process of applying the entity’s accounting policies and that have the most
significant effect on the amounts recognised in the financial statements. [IAS 1.122].
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 906
