incurred claims that it would pay for insured events relating to insurance contracts underwritten in 2017 was
$680. By the end of 2018, the insurer had revised the estimate of incurred claims (both those paid and those
still to be paid) to $673.
4594 Chapter 52
The lower half of the table reconciles the cumulative incurred 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, the effect of discounting is deducted to give the carrying amount
in the statement of financial position.
Incurred claim year
2017
2018
2019
2020 2021 Total
$
$
$
$
$
$
Estimate of incurred 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 incurred claims
702
771
845
903
968
Cumulative payments
(702)
(689)
(570)
(350)
(217)
–
82
275
553 751
1,661
Effect of discounting
(562)
Liabilities for which uncertainty is expected to
20
be settled within one year
Liabilities for incurred claims recognised in
the statement of financial position
1,119
IFRS 17 is also silent on the presentation in the claims development table of:
• exchange differences associated with insurance liabilities arising on retranslation
(e.g. whether previous years’ incurred claims should be retranslated at the current
reporting period date);
• claims liabilities acquired in a business combination or transfer; and
• claims liabilities disposed of in a business combination or transfer.
As IFRS 17 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.
16.3.4
Credit risk – other information
For credit risk that arises from contracts within the scope of IFRS 17, an entity should
disclose: [IFRS 17.131]
• the amount that best represents its maximum exposure to credit risk at the end of
the reporting period, separately for insurance contracts issued and reinsurance
contracts held; and
• information about the credit quality of reinsurance contracts held that are assets.
Insurance contracts (IFRS 17) 4595
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’. IFRS 17
provides no further detail about what is considered to be the maximum exposure to
credit risk for an insurance contract or reinsurance contract held at the end of the
reporting period. The equivalent IFRS 7 requirement for financial instruments requires
disclosure of credit risk gross of collateral or other credit enhancements. [IFRS 7.35K(a)].
However, IFRS 17 does not specify that the maximum credit risk should be disclosed
gross of collateral or other credit enhancements.
Information about the credit quality of reinsurance could be provided by an analysis
based on credit risk rating grades.
16.3.5
Liquidity risk – other information
For liquidity risk arising from contracts within the scope of IFRS 17, an entity should
disclose: [IFRS 17.132]
• a description of how it manages the liquidity risk;
• separate maturity analyses for groups of insurance contracts issued that are
liabilities and groups of reinsurance contracts held that are liabilities that show,
as a minimum, net cash flows of the groups for each of the first five years after
the reporting date and in aggregate beyond the first five years. An entity is not
required to include in these analyses liabilities for remaining coverage
measured applying the premium allocation approach. The analyses may take
the form of:
• an analysis, by estimated timing, of the remaining contractual undiscounted
net cash flows; or
• an analysis, by estimated timing, of the estimates of the present value of the
future cash flows.
• the amounts that are payable on demand, explaining the relationship between such
amounts and the carrying amount of the related groups of contracts, if not disclosed
in the maturity analysis above.
There is no equivalent disclosure required for groups of insurance contracts and
reinsurance contracts held that are in an asset position.
16.3.6 Regulatory
disclosures
Most insurance entities are exposed to externally imposed capital requirements and
therefore the IAS 1 disclosures in respect of these requirements are likely to be applicable.
4596 Chapter 52
Where an entity is subject to externally imposed capital requirements, disclosures are
required of the nature of these requirements and how these requirements are
incorporated into the management of capital. Disclosure of whether these requirements
have been complied with in the reporting period is also required and, where they have
not been complied with, the consequences of such non-compliance. [IAS 1.135].
Many insurance entities operate in several jurisdictions. Where an aggregate disclosure
of capital requirements and how capital is managed would not provide useful
information or distorts a financial statement user’s understanding of an entity’s capital
resources separate information should be disclosed for each capital requirement to
which an entity is subject. [IAS 1.136].
In addition to the requirements of IAS 1, an entity should disclose information about the
effect of the regulatory frameworks in which it operates; for example, minimum capital
requirements or required interest-rate guarantees. [IFRS 17.126]. These extra disclosures
do not contain an explicit requirement for an insurer to quantify its regulatory capital
requirements. The IASB considered whether to add a requirement for insurers to
quantify regulatory capital on the grounds that such disclosures might be useful for all
entities operating in a regulated environment. However, the Board was concerned
about developing such disclosures in isolation in a project on accounting for insurance
contracts that would go beyond the existing requirements in IAS 1. Accordingly, the
Board decided to limit the disclosures about regulation to those set out above.
[IFRS 17.BC369-371].
Additionally, if an entity includes contracts within the same group which would have
been in different groups only becau
se law or regulation specifically constrains the
entity’s practical ability to set a different price or level of benefits for policyholders with
different characteristics (see 6 above), it should disclose that fact. [IFRS 17.126].
16.3.7
Disclosures required by IFRS 7 and IFRS 13
Contracts within the scope of IFRS 17 are not excluded from the scope of IFRS 13 and
therefore any of those contracts measured at fair value are also subject to the disclosures
required by IFRS 13. In practice, this is unlikely as IFRS 17 does not require contracts
within its scope to be measured at fair value. In addition, all contracts within the scope
of IFRS 17 are excluded from the scope of IFRS 7. [IFRS 7.3(d)]. Under IFRS 4, investment
contracts with a DPF are within the scope of IFRS 7.
However, IFRS 7 applies to: [IFRS 7.3(d)]
• derivatives that are embedded in contracts within the scope of IFRS 17, if IFRS 9
requires the entity to account for them separately; and
• investment components that are separated from contracts within the scope of
IFRS 17, if IFRS 17 requires such separation.
16.3.8
Key performance indicators
IFRS 17 does not require disclosure of key performance indicators. However, such
disclosures might be a useful way for an insurer to explain its financial performance
during the period and to give an insight into the risks arising from insurance contracts.
Insurance contracts (IFRS 17) 4597
17
EFFECTIVE DATE AND TRANSITION
17.1 Effective
date
An entity should apply IFRS 17 for annual reporting periods beginning on or after
1 January 2021. [IFRS 17.C1]. When IFRS 17 is applied, IFRS 4 is withdrawn. [IFRS 17.C34].
If an entity applies IFRS 17 earlier than reporting periods beginning on or after
1 January 2021, it should disclose that fact. However, early application is permitted only
for entities that also apply both IFRS 9 and IFRS 15 on or before the date of initial
application of IFRS 17. [IFRS 17.C1].
For the purposes of the transition requirements discussed at 17.2 below: [IFRS 17.C2]
• the date of initial application is the beginning of the annual reporting period in
which an entity first applies IFRS 17 (i.e. 1 January 2021 for an entity first applying
the standard with an annual reporting period ending 31 December 2021); and
• the transition date is the beginning of the annual reporting period immediately
preceding the date of initial application (i.e. 1 January 2020 for an entity first
applying the standard with an annual reporting period ending 31 December 2021
which reports only one comparative period).
17.2 Transition
An entity should apply IFRS 17 retrospectively from the transition date unless
impracticable. Therefore, an entity should: [IFRS 17.C4]
• identify, recognise and measure each group of insurance contracts as if IFRS 17 had
always applied;
• derecognise any existing balances that would not exist had IFRS 17 always applied; and
• recognise any resulting net difference in equity.
The balances derecognised upon application of IFRS 17 would include balances recognised
previously under IFRS 4 as well as items such as deferred acquisition costs, deferred
origination costs (for investment contracts with discretionary participation features) and
some intangible assets that relate solely to existing contracts. The requirement to recognise
any net difference in equity means that no adjustment is made to the carrying amounts of
goodwill from any previous business combination. [IFRS 17.BC374]. However, the value of
contracts within the scope of IFRS 17 acquired in prior period business combinations or
transfers would have to be adjusted by the acquiring entity from the date of acquisition (i.e.
initial recognition) together with any intangible related to those in-force contracts. Any
intangible asset derecognised would include an intangible asset that represented the
difference between the fair value of insurance contracts acquired in a business
combination or transfer and a liability measured in accordance with an insurer’s previous
accounting practices for insurance contracts where an insurer previously chose the option
in IFRS 4 to use an expanded presentation that split the fair value of acquired insurance
contracts into two components. [IFRS 4.31].
Applying the standard retrospectively means that comparative period (i.e. the annual
reporting period immediately preceding the date of initial application) must be restated
and comparative disclosures made in full in the first year of application subject to the
4598 Chapter 52
exemptions noted below. An entity may also present adjusted comparative information
applying IFRS 17 for any earlier periods presented (i.e. any periods earlier than the
annual reporting period immediately preceding the date of initial application) but is not
required to do so. If an entity does present adjusted comparative information for any
prior periods the reference to ‘the beginning of the annual reporting period immediately
preceding the date of initial application’ (see 17 above) should be read as ‘the beginning
of the earliest adjusted comparative period presented’. [IFRS 17.C25]. However, an entity
is not required to provide the disclosures specified at 16 above for any period presented
before the beginning of the annual accounting period immediately preceding the date
of initial application. [IFRS 17.C26]. If an entity presents unadjusted comparative
information and disclosures for any earlier periods, it should clearly identify the
information that has not been adjusted, disclose that it has been prepared on a different
basis, and explain that basis. [IFRS 17.C27].
The requirement to apply IFRS 17 retrospectively as if it has always applied seems to
imply that an entity should estimate the contractual service margin for all individual
interim periods previously presented to get to a number for the contractual service
margin that reflects that as if IFRS 17 had always been applied. [IFRS 17.B137]. This is based
on the fact that only a fully retrospective interim contractual service margin roll-
forward would provide the outcome that corresponds to a situation as if IFRS 17 had
always been applied (see 15.4 above). As a result, retrospective application may be
different for those entities that do and those that do not issue interim financial
statements (see example at 15.4 above). Applying the standard retrospectively by an
entity that issues interim financial statements may present significant additional
operational challenges for insurers upon transition. This is because the contractual
service margin for each interim reporting period subsequent to initial recognition of a
group of contracts would need to be tracked and estimated in accordance with the
requirements in IFRS 17 to determine the contractual service margin on transition date.
In May 2018, in response to a TRG submission about whether reasonable
approximations are permitted when applying IFRS 17 retrospectively, the IASB staff
drew attention to the guidance in paragraph 51 of IAS 8 which states that ‘...the objective
of estimates related to prior periods remains the same as estimates related to the current
period, namely, for the estimates to reflect the circumstances that existed when the
transaction, other event or condition occurred’.44
As exceptions to retrospective application: [IFRS 17.C3]
• an entity is exempt from the IAS 8 requirement to present the amount of the
adjustment resulting from applying IFRS 17 affecting each financial line item to
ether the current period or each prior period presented, or the impact of applying
IFRS 17 in those periods on earnings per share; and
• an entity should not apply the risk mitigation option available for insurance
contracts with direct participation features (see 11.2.3 above) before the date of
initial application of IFRS 17.
Additionally, an entity need not disclose previously unpublished information about
claims development that occurred earlier than five years before the end of the annual
reporting period in which it first applies IFRS 17 (i.e. information about claims that
Insurance contracts (IFRS 17) 4599
occurred prior to 1 January 2017 for an entity first applying the standard with an annual
reporting period ending 31 December 2021). An entity that elects to take advantage of
this disclosure relief should disclose that fact. [IFRS 17.C28].
It is observed in the Basis for Conclusions that no simplification has been provided for
contracts that have been derecognised before transition. This is because the Board
considers that reflecting the effects of contracts derecognised before the transition date
on the remaining contractual service margin was necessary to provide a faithful
representation of the remaining profit of the group of insurance contracts. [IFRS 17.BC390].
Notwithstanding the requirement for retrospective application, if it is impracticable (as
defined in IAS 8), to apply IFRS 17 retrospectively for a group of insurance contracts, an
entity should apply one of the two following approaches instead: [IFRS 17.C5]
• a modified retrospective approach (see 17.3 below); or
• a fair value approach (see 17.4 below).
IAS 8 states that applying a requirement is ‘impracticable’ when an entity cannot apply
it after making every reasonable effort to do so. [IAS 8.5]. Guidance on what impracticable
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 908
