Promises to transfer distinct goods or non-insurance services

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In a final step, after separating non-closely related embedded derivatives and distinct investment components (see ‘Separation of Insurance Contracts‘, an entity should separate from the host insurance contract any promise to transfer distinct goods or non-insurance services to a policyholder.

A good or non-insurance service is distinct if the transferee can benefit from the good or service either on its own or together with other resources that are readily available. A resource is readily available if it is either sold separately or the transferee already owns it. A good or non-insurance service is not distinct if the cash flows and risks associated with that good or service are highly interrelated with those of the insurance component and the entity provides a significant service in integrating the good or service with the insurance component.

Activities that an insurer has to perform to fulfill the insurance contract, such as administrative tasks to set up the contract, are not separated. In general, processing the claims received is part of the activities that the insurer must undertake to fulfill the contract and is not a distinct service that should be separated. There are, however, exceptions, in particular, if the insurance company provides the service to an entity that self-insures a part of its risks. Illustrative Example 5 to IFRS 17 demonstrates a contract with a distinct service component that should be separated.

Once the entity has concluded that a promise to transfer goods or non-insurance services is accounted for separately, it should allocate the cash flows to the insurance component and any promises to provide goods or non-insurance services accounted for separately.

A comprehensive example of how components are separated from an insurance contract is included in Illustrative Example 4 to IFRS 17.

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