Insurances risk adjustment for non-financial risks

The risk adjustment to the estimates of future cash flows reflects the compensation an insurance company expects for bearing the uncertainty about the amount and timing of the cash flows that arise from non-financial risks.

Risk adjustment = compensation that makes an entity indifferent between:

Fulfilling a
liability with a range of possible outcomes:

eg, 50% probability for CU 50 and 50% probability for CU 500

AND

Fulfilling a liability with the same expected present value (CU 275 in this

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Service or insurance contract?

Some contracts meet the definition of an insurance contract but their primary purpose is to provide services for a fixed fee. An entity issuing such contracts may choose to apply IFRS 15 to them if, and only if all of the following conditions are met:

Identification of Fixed fee contracts for services:

All of the following three conditions apply to a fixed fee contract for services:… Continue reading