Disclosure recognised insurance amounts

Explanation of recognised amounts

An entity is required to disclose the following:

1. Roll forward reconciliations of the carrying amounts of contracts within the scope of IFRS 17

An entity is required to disclose reconciliations in a tabular format that show how the net carrying amount of contracts within the scope of IFRS 17 changed during each period due to cash flows and income and expenses recognized in the statement of financial performance. Separate reconciliations are required for insurance contracts issued and reinsurance contracts held. For each reconciliation, an entity should disaggregate the net amounts at the beginning and end of each period into a total for groups of contracts that are assets and a total for groups of contracts that are liabilities [IFRS 17 98-99].

The required reconciliations provide two different perspectives on the change in net carrying amounts in a period [IFRS 17 100]:

Reconciliations for groups of contracts to which an entity applies the premium allocation approach need only provide a breakdown in the change in the components of the liability for incurred claims (i.e., changes in the estimated present value of the future cash flows of incurred claims and the related risk adjustment for non-financial risk) [IFRS 17 101].

The standard prescribes separate items that should be included in each of the reconciliations. One way to present the reconciliation by insurance obligation, included in IASB’s IFRS 17 Effects Analysis (Illustration 31), is shown below:

Liability for remaining coverage

Excluding onerous contracts component Onerous contracts component Liabilities for incurred claims Total

Insurance contract liabilities 2020

161,938

15,859

1,021

178,818

Insurance revenue

-9,856

-9,856

Insurance services expenses

1,259

-623

7,985

8,621

– Incurred claims and other expenses

-840

7,945

7,105

– Acquisition expenses

1,259

1,259

– Changes that relate to future service: loss on onerous contracts and reversals of those losses

217

217

– Changes that relate to past service: changes to liability for incurred claims

40

1,259

Investment components

-6,465

6,465

Insurance service result

-15,062

-623

1,445

-1,235

Insurance finance expenses

8,393

860

55

9,308

Total changes in the statement of comprehensive income

-6,689

237

14,505

8,073

Cash flows

Premiums received

33,570

33,570

Claims, benefits and other expenses paid

-14,336

-14,336

Acquisition cash flows paid

-401

-401

Total cash flows

33,169

-14,336

18,833

Insurance contract liabilities 2021

188,438

16,096

1,190

205,724

The IASB’s IFRS 17 Effects Analysis also includes an illustration of how to present a reconciliation based on components of the carrying amount:

Estimates of the present value of future cash flows Risk adjustment Contractual service margin Total

Insurance contact liabilities 2020

163,962

5,998

8,858

178,818

Changes that relate to current service

35

-604

-923

-1,492

CSM recognised for service period

-923

-923

Risk adjustment recognised for the risk expired

-604

-604

Experience adjustments

35

35

Changes that relate to future service

-784

1,117

-116

217

Contracts initially recognised in the period

-2,239

1,077

1,375

123

Changes in estimates reflected in the CSM

1,452

39

-1,491

Changes in estimates that result in onerous contact losses

93

1

94

Changes that relate to past service

47

-7

40

Adjustments to liabilities for incurred claims

47

-7

40

Insurance service result

-702

506

-1,039

-1,235

Insurance finance expenses

9,087

221

9,308

Total changes in the statement of comprehensive income

8,385

506

-818

8,073

Cash flows

18,833

18,833

Insurance contract liabilities 2021

191,180

6,504

8,040

205,724

Considerations

The roll forward reconciliations are detailed analyses of movements in the carrying amounts of insurance contracts issued and reinsurance contracts held. They will provide more information to users than they currently receive from IFRS financial statements. An entity is required to provide analyses of the change in the carrying amount that view insurance contracts in two ways:

  • The building blocks view (present value of expected cash flows, risk adjustment for non-financial risk, and the CSM)
  • By type of insurance obligation (the liability for incurred claims and the liability for remaining coverage split between the loss component and the non-loss component)

The reconciliations are two views of the same events in a reporting period. Entities need to decide to what extent they build the reconciliations from low-level detailed data on changes in the carrying amounts of insurance contracts maintained in a general ledger (and/ or data warehouse) versus maintaining high-level data in the general ledger and taking a top-down approach to analyzing movements and obtaining the required movements data from other sources. On one hand, a bottom-up approach to maintaining movement data in the general ledger/data warehouse represents a significant data and process challenge. On the other hand, a top-down approach risks an entity being unable to provide the analyses in a robust and timely way.

2. Analysis of insurance revenue

For insurance contracts issued, other than those to which the entity applies the premium allocation approach, entities need to provide the following analysis of insurance revenue recognised in the period [IFRS17 106]:

  • Amounts relating to changes in the liability for remaining coverage, separately disclosing:
  • Insurance service expenses incurred during the period
  • Change in the risk adjustment for non-financial risk
  • Amount of the CSM recognised in profit or loss because of the transfer of services in the period
  • Allocation of the portion of the premiums that relate to the recovery of insurance acquisition cash flows
3. Analysis of the effect of contracts initially recognised in each period

For contracts, other than those to which the entity applies the premium allocation approach, it needs to disclose the effect on the statement of financial position of contracts initially recognised in each period, showing the effect at initial recognition on [IFRS 17 107]:

  • Estimates of the present value of future cash outflows, showing separately the amount of insurance acquisition cash flows
  • Estimates of the present value of future cash inflows
  • Risk adjustment for non-financial risk
  • The CSM

In this disclosure above, entities must separately disclose amounts resulting from:

  • Contracts acquired from other entities in transfers of insurance contracts or business combinations
  • Groups of contracts that are onerous [IFRS 17 108]

Separate disclosures are required for insurance contracts issued and reinsurance contracts held.

4. Explanation of expected CSM recognition in profit or loss

An entity must disclose an explanation of when it expects to recognize the CSM remaining at the end of the reporting period in profit or loss, either quantitatively, in appropriate time bands, or by providing qualitative information. Such information must be provided separately for insurance contracts issued and reinsurance contracts held [IFRS 17 109].

5. Information about contracts to which the entity applies the premium allocation approach

When an entity uses the premium allocation approach, it must disclose the following [IFRS 17 97]:

  • Which of the criteria for the use of the premium allocation approach for insurance contracts issued and reinsurance contracts held it has satisfied
  • Whether it makes an adjustment for the time value of money and the effect of financial risk for the liability for remaining coverage and the liability for incurred claims
  • Whether it recognizes insurance acquisition cash flows as expenses when it incurs those costs or amortizes insurance acquisition cash flows over the coverage period
6. Explanation of the total amount of insurance finance income or expenses in each reporting period

The total amount of insurance finance income or expenses in the reporting period must be disclosed and explained. In particular, an entity must explain the relationship between insurance finance income or expenses and the investment return on its assets, to enable users of its financial statements to evaluate the sources of finance income or expenses recognized in profit or loss and other comprehensive income [IFRS 17 110].

Specifically, for contracts with direct participation features, an entity must [IFRS 17 111-113]:

  • Describe the composition of the underlying items and disclose their fair value
  • Disclose the effect of any adjustment to the CSM in the current period resulting from any choice not to adjust the CSM to reflect some of all of the changes in the effect of financial risk on the entity’s share of underlying items for the effect of the time value of money and financial risks not arising from the underlying items (see ‘Mitigating financial risks with derivatives‘)
  • Disclose, in the period when it changes the basis of disaggregation of insurance finance income or expense between profit or loss and other comprehensive income:
  • The reason why the entity was required to change the basis of aggregation
  • The amount of any adjustment for each financial statement line item affected
  • The carrying amount of the group of insurance contracts to which the change applied at the date of the change
7. Transition amounts

An entity must provide disclosures that enable users of financial statements to identify the effect of groups of insurance contracts measured at the transition date when applying the modified retrospective approach or the fair value approach on the CSM and insurance revenue in subsequent periods. To achieve this, IFRS 17 requires various disclosures to be made each reporting period until the contracts which exist at transition have expired or been extinguished. An entity must disclose the reconciliation of the CSM and the amount of insurance revenue required separately for [IFRS 17 114]:

  • Insurance contracts that existed at the transition date to which the entity has applied the modified retrospective approach
  • Insurance contracts that existed at the transition date to which the entity has applied the fair value approach
  • All other insurance contracts (i.e., including those to which the entity has accounted for fully)

For all periods in which disclosures are made for contracts that, on transition, were accounted for using either the modified retrospective approach or the fair value approach, an entity must explain how it determined the measurement of insurance contracts at the transition date [IFRS 17 115].

An entity that chooses to disaggregate insurance finance income or expenses between profit or loss and other comprehensive income applies the requirements discussed for the modified retrospective approach or for the fair value approach. This is to determine the cumulative difference between the insurance finance income or expenses that would have been recognised in profit or loss and the total insurance ~finance income or expenses at the transition date for the groups of insurance contracts to which the disaggregation applies. For all periods in which amounts determined applying these alternative transitional approaches exist, the entity should disclose a reconciliation from the opening to the closing balance of the cumulative amounts included in other comprehensive income for financial assets measured at fair value through other comprehensive income related to the groups of insurance contracts. The reconciliation should include, for example, gains or losses recognized in other comprehensive income in the period and gains or losses previously recognized in other comprehensive income in previous periods reclassified in the period to profit or loss [IFRS 17 116].

Consideration

Transition disclosures will require considerable effort. Entities need to think about their solutions for identifying and tracking these amounts carefully. They will need to continue separately disclosing the CSM for contracts in force at transition in the years after the transition, and must consider this requirement when building their financial reporting processes and systems. The effort of tracking the CSMs for groups of contracts present at the transition that are not determined on a fully retrospective basis needs to be considered together with the effort of applying a fully retrospective approach at transition.

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