IFRS in your pocket |2021

IFRS 17 Insurance Contracts

Overview Establishes the principles for the recognition,

measurement, presentation and disclosure of insurance

This Standard is applicable for annual periods beginning

on or after 1 January 2023, including the amendments
that were issued in June 2020.

Insurance and IFRS 17 specifies how an entity recognises, measures,

reinsurance presents and discloses insurance contracts, reinsurance
contracts contracts and investment contracts with discretionary
participation features.

An insurance contract is one in which the issuer accepts

significant insurance risk by agreeing to compensate the
policyholder for the insured event.

A reinsurance contract is an insurance contract issued by

the reinsurer to compensate another entity for claims
arising from one or more insurance contracts it holds as
an issuer.
Aggregation of Entities must identify portfolios of insurance contracts,
insurance being those contracts that have similar risks and are
contracts managed together, such as within a product line.

Each portfolio is divided into groups of insurance

contracts on the basis of, at a minimum, those that at
initial recognition are onerous, have no significant
possibility of becoming onerous subsequently or do
not fall into either category. Groups cannot include
contracts issued more than one year apart.

Recognition A group of insurance contracts is recognised from the

earlier of the beginning of its coverage period or the
date when the first payment from a policyholder in the
group becomes due, or for a group of onerous contracts,
when the group becomes onerous.

Initial On initial recognition, an entity measures a group measurement

of insurance contracts at the total of the group’s fulfilment cash
flows (FCF) and the contractual service margin (CSM).

The FCF comprises an estimate of future cash flows, an

adjustment to reflect the time value of money and the
financial risks associated with the future cash flows and a
risk adjustment for non-financial risk.

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IFRS in your pocket |2021

The CSM is the unearned profit of the group of insurance

contracts that the entity will recognise as it provides
services in the future. The CSM of a group of onerous
contracts is nil and the group’s measurement consists
entirely of fulfilment cash flows. The measurement of a
net outflow expected from a group of contracts
determined to be onerous on initial recognition is
recognised at that date in profit or loss. For profitable
contracts, the CSM is measured on initial recognition at an
amount that results in no income or expenses arising from
the initial recognition of the FCF, the derecognition at that
date of any asset or liability recognised for insurance
acquisition cash flows and any cash flows arising from the
contracts in the group at that date.

IFRS 17 also requires an entity to include in the initial

measurement of the CSM of a group of insurance
contracts the effect of the derecognition of any asset or
liability previously recognised for cash flows related to
that group paid or received before the group is
recognised. This also applies to assets and liabilities
previously recognised because of the requirements of
another IFRS Standard even if no cash flows have been
paid or received.

An entity is required to use a systematic and rational

method to allocate insurance acquisition cash flows that
are directly attributable to a group of insurance contracts
to that group and to groups that will include insurance
contracts that are expected to arise from renewals of the
insurance contracts in that group.

Insurance acquisition cash flows that are directly

attributable to a portfolio of insurance contracts, but that
are not directly attributable to individual contracts or
groups of contracts, are allocated based on a systematic
and rational method to groups in the portfolio.

An entity recognises those cash flows as an asset until the

entity recognises groups of related contract renewals or
groups expected to be in the portfolio.

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Subsequent The carrying amount of a group of insurance measurement
contracts at the end of each reporting period is the sum of the
liability for remaining coverage (comprising the FCF related to future services
and the CSM at that date) and the liability for incurred claims.

The CSM is adjusted at the end of each reporting period to

reflect the change in fulfilment cash flows on a group of
insurance contracts that relates to the future service to be
provided.

Revenue is comprised of the amount of premium that

compensates for insurance service expense (as expected at
the beginning of the reporting period) and the release of
CSM based on the amount of service provided in the period
expressed in coverage units. The Standard requires an entity
to allocate the CSM based on coverage units determined
considering the quantities of benefits and expected period
of both insurance coverage and any investment-return or
investment-related service. The CSM is released in full over
the coverage period.

Direct participating contracts are viewed as creating an

obligation for the entity to pay to the policyholder an
amount equal to the underlying items less a variable fee.
The variable fee comprises the entity’s share of the fair
value of the underlying items less amounts payable to the
policyholder that do not vary based on the underlying items.
The general measurement model is modified for such
contracts. This modification is referred to as the Variable
Fee Approach.

For groups of contracts with a coverage period of less

than one year, or where it is reasonably expected to
produce a liability measurement that would not differ
materially from the general approach under IFRS 17, a
simplified Premium Allocation Approach can be applied.

Specific measurement requirements apply to onerous

insurance contracts, reinsurance contracts and investment
contracts with discretionary participation features.
Presentation in Amounts recognised in the statement of financial
the statement of performance are disaggregated into an insurance service
financial result and insurance finance income or expenses.
performance
The insurance service result is presented in profit or loss
and comprises revenue and insurance service expenses.

Revenue arises from the provision of insurance contract

services and amortisation of insurance acquisition cash
flows.

Insurance service expenses comprise the following:

• Incurred claims (excluding repayments of 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

• Changes that relate to future service, i.e. losses on

groups of contracts and reversals of such losses

Income or expenses from reinsurance contracts held shall

be presented separately from the expenses or income
from insurance contracts issued.

Insurance finance income or expense reflects changes

from the effect of the time value of money and financial
risk (excluding any such changes for groups of insurance
contracts with direct participating insurance contracts
that would instead adjust the CSM). Entities can choose
to present all insurance finance income or expenses in
profit or loss or to present in profit or loss only an
amount determined by a systematic allocation of the
expected total insurance finance income or expenses
over the duration of a group of contracts. If the latter
option is taken, the remaining insurance finance income
or expense is presented in other comprehensive income.
Presentation in Separate presentation is required of insurance and
the statement reinsurance contracts issued, further separated into those
of financial that are assets and those that are liabilities.
position
The presentation in the statement of financial position is
on a portfolio level.
Disclosure Quantitative and qualitative information is required about
the amounts recognised in the financial statements that
arise from insurance contracts, the significant judgements,
and changes in those judgements, made when applying IFRS
17 and the nature and extent of risks arising from insurance
contracts.
Pending changes IFRS 17 is effective for annual periods beginning on or after
1 January 2023.

In June 2020, the Board issued Amendments to

IFRS 17, which make targeted amendments to certain
aspects of IFRS 17, including a deferral to
1 January 2023 of the effective date of IFRS 17 and the
fixed expiry date for the temporary exception in IFRS 4
from applying IFRS 9.

These amendments will become effective when IFRS 17

becomes effective.

The amendments to IFRS 17 have been reflected in the

detailed description above.