Modification and de-recognition

Modification

Under PSAK 74, an entity can derecognize or cancel the recognition of the original
contract and recognize the modified contract as a new contract if the terms of the insurance
contract are modified, for example through an agreement between the parties to the contract
or by a change in regulations, based on the fulfillment of one of the specified criteria.

Modifications are substantive if one of the following conditions is met:

1. If the amended terms were included at the start of the contract this would result in:
• Exceptions from the scope of the Standard
• Separation of different embedded derivatives
• Redefined contract boundaries
• Reallocation to a different contract group
2. However, if the original contract meets the definition of a direct par insurance
contract, but the modified contract no longer meets that definition, or vice versa
3. the entity initially applies the PAA, but the modification of the contract makes it no
longer eligible for it.

De-recognition

An entity shall derecognize the insurance contract when it is terminated, or if one of

the conditions of the substantive modification of the insurance contract is met. The entity is
no longer subject to risk and therefore is no longer required to transfer economic resources to
fulfill an insurance contract when an insurance contract is written off. For example, when an
entity purchases a reinsurance contract, the entity derecognizes the base insurance contract,
when, and only when, the base insurance contract is written off.

An entity derecognizes an insurance contract from its group of contracts by applying

the following terms in DE PSAK 74: Insurance Contract:

1. An entity must first adjust the fulfillment cash flows allocated to the group before
using it to eliminate the present value of future cash flows and adjustments for non-
financial risks related to rights and obligations that have been derecognized from the
group.
 2. The entity must also adjust the group contractual service margin for changes in
fulfillment cash flows
3. The number of units of coverage for the estimated remaining coverage period must be
adjusted to reflect the units that are derecognized from the group, and the amount of
contractual service margin recognized in profit or loss for that period is based on the
adjusted figure.

Presentation in the statement of financial position

An entity shall present separately in the statement of financial position the carrying
amount of the group:

1. The insurance contract issued is an asset

2. an issued insurance contract that is an obligation
3. reinsurance contract held in the form of assets
4. reinsurance contracts held which are liabilities.

Recognition and presentation in the financial performance report

An entity shall separate the amounts recognized in the statement of financial performance
into:

1. Results of insurance services, which consist of insurance income and insurance

service expenses
2. Insurance financial income or expenses.

The entity is not required to separate changes in the non-financial risk adjustment
between insurance service proceeds and insurance income or financial expenses. If the entity
does not make the separation, the entity includes all changes in the non-financial risk
adjustment as part of the insurance proceeds. Meanwhile, income or expenses from
reinsurance contracts held are presented separately from expenses or income from the
insurance contract issued.

Insurance service results

An entity shall present income and loss arising on group insurance contracts issued,
and insurance service costs arising on group insurance contracts issued by it, resulting from
insurance services. An entity shall present income and loss arising on group insurance
contracts issued, and insurance service costs arising on group insurance contracts that it
issued. Insurance income and insurance service expense which are presented in profit or loss
do not include any investment components. Thus, an entity does not need to present premium
information in profit or loss if the information is inconsistent with the aforementioned
provisions.

Insurance financial income or expenses

Insurance finance income or expense consists of changes in the recorded value of the
group of insurance contracts arising from:

a) The effect of the time value of lots and changes in the time value of money
b) The effect of changes in assumptions related to financial risk
c) Excludes such changes for group insurance contracts with directly participating
insurance contracts that will adjust the CSM.

An entity has a choice of accounting policies between including all insurance

financial income or expense for the period of the income statement, or separating them
between the amounts shown in profit or loss and the amounts shown in other comprehensive
income.

Under the general model, disaggregation in this contract means that the entity must
present in profit or loss an amount that is determined by a systematic allocation of the total
expected financial income or expenses over the duration of the class of contracts. On
derecognition, the remaining group numbers in OCI will be reclassified to profit or loss.
Whereas, for direct nominal insurance contracts, only if the entity holds the underlying item,
separation means presenting in profit or loss as insurance finance income or expense an
amount that eliminates any accounting discrepancies with financial income or expenses
arising from the underlying item. On derecognition of this group, the numbers previously
recognized in OCI remain.

Disclosure

The purpose of the disclosure requirements is for an entity to disclose information in

the notes to financial statements which, together with the information in the statements of
financial position, financial performance statements and cash flow statements, provide a basis
for users of financial statements to assess the impact of an insurance contract (within the
scope of DE PSAK 74 : Insurance Contract) against the entity's statement of financial
position, financial performance and cash flow. To achieve these objectives, entities disclose
both qualitative and quantitative information about:

1. An amount recognized in its financial statements that arises from an insurance

contract;
2. Significant assessments, and changes in those assessments, made when applying
3. The nature and extent of risks arising from insurance contracts.

Transition

An entity shall apply the Standards retrospectively unless it is impractical, in which

case the entity has the option of using either the modified retrospective approach or the fair
value approach. Under a modified retrospective approach, an entity should use reasonable
and supportable information and make maximum use of the information to be used to
implement a full retrospective approach, but only need to use available information without
undue cost or effort. Under this approach the use of reviews is permitted, if it is the only
source of practical information for restatements of previous periods.

Meanwhile, under the fair value approach, an entity determines the CSM at the
transition date as the difference between the fair value of a group of insurance contracts at
that date and the FCF measured at that date. Using this approach, no annual group transition
is required. At the date of initial application of the Standard, entities that have applied PSAK
71 can retrospectively redefine and reclassify their financial assets in connection with
contract-related activities within the scope of the Standard. An entity may choose not to
restate the comparison of PSAK 71 with the difference between the previous carrying amount
of the financial asset and the carrying amount at the initial application date which is
recognized in opening equity at the initial application date. Restatements of previous periods
must reflect all the requirements of PSAK 71.

Significant considerations in applying DE PSAK 74: Insurance Contracts

An entity shall disclose the considerations and significant changes made in applying
DE PSAK 74: Insurance Contracts. In particular, an entity shall disclose the inputs,
assumptions and estimation techniques used, including the methods used to measure
insurance contracts within the scope of DE PSAK 74 and the process for estimating inputs
into those methods, any changes in the method and process for estimating the inputs used to
measure the contract. , the reasons for each change, and the types of contracts affected, and
are not covered by the approach used to distinguish changes in estimated future cash flows
arising from the use of discretion (policy), other changes in estimated future cash flows for
contracts without direct participation features, to determine non-financial risk adjustments, to
determine discount rates and to determine investment components.

The nature and level of risk arising from contracts within the scope of DE PSAK: 74
Insurance Contracts

An entity shall disclose information that enables users of financial statements to

evaluate the nature, amount, timing and uncertainty of future cash flows arising from
contracts within the scope of DE PSAK 74: Insurance Contracts. This disclosure will focus
more on insurance and financial risks arising from insurance contracts and how these risks
are managed. Financial risks generally include, but are not limited to, credit risk, liquidity
risk and market risk.

• All types of risk — concentration of risk

An entity shall disclose information about the concentration of risk arising from
contracts within the scope of DE PSAK 74: Insurance Contracts, including a
description of how the entity determines that concentration of risk, and a description
of similar characteristics that identify each concentration (for example, type of
insured event, industry, geographic area, or currency. ). A concentration of financial
risk may arise, for example, from guaranteed interest rates that impact the same rate
for a large number of contracts.
• Insurance risk and market risk - sensitivity analysis
Entities disclose information regarding the sensitivity of changes in risk exposure
arising from contracts within the scope of DE PSAK 74: Insurance Contracts. To
meet this requirement, an entity shall disclose a sensitivity analysis that shows how
profit or loss and equity will be affected by changes in risk exposure that may occur
at the end of the reporting period for insurance risk - showing the impact on issued
insurance contracts, before and after risk mitigation with the reinsurance contract
milan and for each type of market risk, the methods and assumptions used in
preparing the sensitivity analysis and changes from the previous period of the
methods and assumptions used in preparing the sensitivity analysis, and the reasons
for such changes.
• Insurance risk - claim development
 An entity shall disclose actual claims in comparison with previous estimates of the
undiscounted claims amount (ie claims development). Disclosure about claims
development starts from the period when the earliest material claims emerged and
there is still uncertainty regarding the amount and timing of claims payments at the
end of the reporting period. However, disclosure is not required for a period of more
than 10 years prior to the end of the reporting period.
• Credit risk - other information
For credit risk arising from contracts within the scope of DE PSAK 74: Insurance
Contracts, the entity shall disclose the amount that best represents the entity's
maximum credit risk exposure at the end of the reporting period, which is separated
from the issued insurance contracts and reinsurance contracts provided for and
information about the credit quality of the contracts. reinsurance milikan which is an
asset.
• Liquidity risk - other information.
For liquidity risk arising from contracts within the scope of DE PSAK 74: Insurance
Contracts, the entity discloses a description of how the entity manages liquidity risk.
and a separate maturity analysis for a group of issued insurance contracts that are
liabilities and a group of reinsurance contracts that are liabilities that show, at a
minimum, the group's net cash flows for each year from the first five years after the
reporting date and on a combined basis for the years after five years.

Case related to PSAK 74 in daily life

Case PT. Asuransi Jiwasraya (Persero)

Income Recognition

In the process of recording all economic events, PT. Asuransi Jiwasraya (Persero)
Jambi Branch refers to the Statement of Financial Accounting Standards (PSAK) No. 36.
Thus, the process of recording revenue at PT.Asuransi Jiwasraya (Persero) Jambi Branch is
recorded based on the accrual basis method, which is the process of recording accounting
transactions where the transaction is recorded when it occurs, even though it has not received
or issued cash. The main source of income at PT. Asuransi Jiwasraya (Persero) Jambi Branch
consists of premium income. Premium income is divided into 2 (two) types, namely gross
premium income and other income (Permatasari, Tjandrakirana & Meirawati, 2018).

Expense Recognition
 The process of recording expenses is recorded based on the accrual basis method,
which is the process of recording accounting transactions where the transactions are recorded
when they occur, even though they have not received or disbursed cash which is then directly
entered into the company computer. Insurance expenses at PT. Asuransi Jiwasraya (Persero)
Jambi Branch is divided into 2 (two) types, namely:

1. Claim expenses which consist of gross claims / claims and benefits.

2. Operating expenses, which consist of marketing expenses, general expenses and non-
operating expenses (proceeds)

Problems:

Recognition and Measurement of Liabilities

Liabilities contained in the balance sheet of PT. Asuransi Jiwasraya (Persero) Jambi
Branch, namely only other liabilities. Generally, the liabilities in this life insurance company
are the liabilities of the life insurance company to the policyholders which include future
policy benefits liabilities, reserves for unearned premiums, estimated claims liabilities, claims
payable, and liabilities to unit-linked holders. However, PT. Asuransi Jiwasraya (Persero)
Branch Jambi does not record and calculate the liability for future policy benefits in their
financial statements. Therefore, the liability for future policy benefits that occurs is only
made at PT. Asuransi Jiwasraya (Persero) Head Office to be calculated and estimated. The
results of the calculations and estimates made by the head office are then sent back to the
branch office, but only in the form of information so they are not reported in the annual
financial report of PT. Asuransi Jiwasraya (Persero) Jambi Branch, but reported as a whole
by PT. Asuransi Jiwasraya (Persero) Head Office in their annual financial reports

Disclosure

PT. Asuransi Jiwasraya (Persero) Branch Jambi does not make notes on financial
reports (CaLK) but is carried out by the head office, as a result there is no accounting policy.
However, PT. Asuransi Jiwasraya (Persero) Branch Jambi discloses matters regarding life
insurance contracts in the annual report which shows the company's financial position
whether it is disclosed in the balance sheet or the income statement.

References
Draft Exposure PSAK 74
Permatasari, A., Tjandrakirana, R., & Meirawati, E. 2018. Analisis Penerapan PSAK No. 36
tentang Akuntansi Kontrak Asuransi Jiwa (Studi Kasus PT. Asuransi Jiwasraya (Persero)
Cabang Jambi). BALANCE Jurnal Akuntansi dan Bisnis, 3(1), 341-347