Disclosure about insurance risks

Disclosure about insurance risks – Disclosure about the nature and extent of insurance risks 

An entity needs to disclose information that enables financial statement users to evaluate the nature, amount, timing and uncertainty of future cash flows that arise from contracts within the scope of IFRS 17 [IFRS 17 93 and IFRS 17 121]. Disclosure about insurance risks

Disclosures focus on the insurance and financial risks that arise from insurance contracts and how they have been managed. Financial risks typically include but are not limited to, credit risk, liquidity risk and market risk [IFRS 17 122]. Many similar disclosures were included in IFRS 4, often phrased to the effect that an insurer should make disclosures about insurance contracts, assuming that these were within the scope of IFRS 7. The equivalent disclosures now required by IFRS 17 are more specific to the circumstances of the measurement of insurance contracts in the standard, with no cross-reference to IFRS 7. Disclosure about insurance risks

For each type of risk arising from contracts within the scope of IFRS 17, an entity must disclose [IFRS 17 124]:Disclosure about insurance risks

  • Exposures to risks and how they arise 
  • The entity’s objectives, policies, and processes for managing the risks and methods used to measure the
  • Any changes in the above from the previous period
  • Summary quantitative information about its exposure to that risk at the end of the reporting period, with disclosure based on information provided internally to the entity’s key management personnel

Specific disclosure requirements in IFRS include [IFRS 17 126-132 and IAS 1 135-136]:

  • Concentration of risks
  • Sensitivity analyses for insurance and finance risks
  • Claims development 
  • Credit risk — including maximum exposures and credit quality
  • Liquidity risk 
  • The effect of regulatory frameworks in which the entity operates, e.g., minimum capital requirements or required interest-rate guarantees

The details

IFRS 17 Insurance contracts – The Core

IFRS 17 121 -125

This column provides information

whether requirements are new,

existing (no changes) or expanded.

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the IFRS vocabulary.

Disclosure about insurance risks

Disclosure about insurance risks

Disclosure about insurance risks

Disclosure about insurance risks

Disclosure about insurance risks

IFRS 4 requires an entity to disclose information to enable users of its financial statements to evaluate the nature and extent of risks arising from insurance contracts. In order to achieve this, IFRS 4 sets out a number of more detailed requirements that an entity shall disclose in order to comply with this requirement.

IFRS 17 combines the existing requirements on risk disclosures from IFRS 4 and IFRS 7, and entities preparing risk disclosures in accordance with IFRS 17 will recognise a large number of the requirements from the disclosures that are already presented under IFRS 4 and IFRS 7.

Under IFRS 17, an entity shall disclose information that enables users of its financial statements to evaluate the nature, amount, timing and uncertainty of future cash flows from contracts within the scope of IFRS 17. The risks typically expected to arise are insurance risk and financial risks (market risk, credit risk and liquidity risk).

For each type of risk identified, the entity is required to disclose its exposure, how the exposure arises, its objectives, policies and processes for managing the risk and the methods that are used to measure the risk. Any changes in risks or risk management compared to the previous period have to be disclosed.

An entity shall provide both quantitative and qualitative information about its exposure to each of the risks.

Something else -   Disclosure requirements IFRS 4 and IFRS 17

Information about effect of regulatory frameworks

IFRS 17 126

New

An entity shall disclose information about the effect of the regulatory frameworks in which it operates (for example, minimum capital requirements or required interest-rate guarantees). Disclosure about insurance risks

Additionally, an entity should disclose when it applies IFRS 17(20) to contract aggregation requirements (i.e. when laws and regulations restrict an entity’s ability to set a different price or level of benefits to certain policyholders with different characteristics).

All types of risk – Concentrations of risk

IFRS 17 127

Existing

IFRS 17 requires an entity to disclose information about the concentrations of risk that arise from contracts within the scope of IFRS 17. The requirements include a description of how the entity determines the concentrations and a description of the shared characteristic that identifies each concentration. An example of this could be if the entity provides interest rate guarantees that come into effect at the same level for a material number of contracts.

This requirement is not new compared to IFRS 4 and is not expected to require additional disclosures.

Insurance and market risks – Sensitivity analysis

IFRS 17 128 – 129

Expanded

IFRS 17 requires an entity to disclose information about sensitivities to changes in risk variables arising from contracts within the scope of IFRS 17.

The disclosures shall include the effect on profit or loss and equity of reasonably possible changes in the risk variables as well as the methods and assumptions used in preparing the sensitivity analysis and any changes in these compared to previous periods (including the reason for this). Specific requirements are described for insurance risks and market risk separately. Disclosure about insurance risks

This requirement is not new compared to IFRS 4; however, IFRS 17 specifically requires explaining the relationship between the sensitivities to changes in market risk variables arising from insurance contracts and those arising from financial assets held by the entity.

If an entity uses an alternative sensitivity analysis to manage risks arising from contracts within the scope of IFRS 17, it may use this sensitivity analysis instead of that required above. Additional disclosure requirements are applicable in this case to explain the methods used as well as their objectives and limitations, main parameters and assumptions. Disclosure about insurance risks

Insurance risk – Claims development

IFRS 17 130

Something else -   Introduction IFRS 17 Insurance contracts

Existing

IFRS 17 requires an entity to disclose a comparison of the development of actual claims and previous estimates, starting with the period when the earliest material claim arose and for which there is still uncertainty about the amount and timing of the claims payments at the end of the reporting period, but the disclosure is not required to start more than ten years before the end of the reporting period. This disclosure is not required where uncertainty about the amount and timing of the claims payments is typically resolved within one year. Disclosure about insurance risks

IFRS 17 specifically requires this disclosure to be reconciled with the LIC, which was not an explicit requirement under IFRS 4.

Credit risk – Other information

IFRS 17 131

Existing

IFRS 17 requires an entity to disclose the amount that best represents the maximum exposure to credit risk as well as information about the credit quality of reinsurance contracts held. Disclosure about insurance risks

Information about credit risk has previously been required by IFRS 4 and IFRS 7; however, IFRS 17 introduces an explicit requirement to disclose the credit quality of reinsurance contracts held that are assets, which may lead to additional information being disclosed.

Credit risk – Other information

IFRS 17 132

Expanded

IFRS 17 requires an entity to describe how liquidity risk is managed and disclose a maturity analysis that as a minimum shows the net cash flows for groups of insurance contracts issued that are liabilities and groups of reinsurance contracts held that are liabilities for each of the first five years and aggregated cash flows beyond that. Disclosure about insurance risks

The analysis can be provided based on undiscounted net cash flows by estimated timing or on the estimates of the present value of future cash flows by estimated timing. This disclosure is not required for the LRC relating to contracts measured under the PAA.

An entity shall also disclose any amounts that are payable on demand, explaining the relationship between such amounts and the carrying amount of the related groups of insurance contracts.

Information about liquidity risk has previously been required by IFRS 4 and IFRS 7; however, IFRS 17 introduces explicit requirements regarding the net cash flows from insurance related liabilities and information about amounts payable on demand, which may lead to additional information being disclosed.

Something else -   Modified retrospective approach

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Disclosure about insurance risks

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Something else -   IFRS 7 Nature and extent Financial instruments risks

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