IFRS 17AG Insurance revenue

Last Updated on 10/02/2020 by 75385885

IFRS 17 Insurance contractsIFRS 17AG Insurance revenue

IFRS 17AG Insurance revenue

Insurance revenue (paragraphs 83 and 85)

B120 The total insurance revenue for a group of insurance contracts is the consideration for the contracts, ie the amount of premiums paid to the entity:

  1. adjusted for a financing effect; and
  2. excluding any investment components.

B121 Paragraph 83 requires the amount of insurance revenue recognised in a period to depict the transfer of promised services at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those services. The total consideration for a group of contracts covers the following amounts:

  1. amounts related to the provision of services, comprising:
    1. insurance service expenses, excluding any amounts allocated to the loss component of the liability for remaining coverage;
      ia. amounts related to income tax that are specifically chargeable to the policyholder;
    2. the risk adjustment for non-financial risk, excluding any amounts allocated to the loss component of the liability for remaining coverage; and
    3. the contractual service margin.
  2. amounts related to insurance acquisition cash flows.

B122 Insurance revenue for a period relating to the amounts described in paragraph B121(a) is determined as set out in paragraphs B123–B124. Insurance revenue for a period relating to the amounts described in paragraph B121(b) is determined as set out in paragraph B125.

B123 Applying IFRS 15, when an entity provides services, it derecognises the performance obligation for those services and recognises revenue. Consistently, applying IFRS 17, when an entity provides services in a period, it reduces the liability for remaining coverage for the services provided and recognises insurance revenue. The reduction in the liability for remaining coverage that gives rise to insurance revenue excludes changes in the liability that do not relate to services expected to be covered by the consideration received by the entity. Those changes are:

  1. changes that do not relate to services provided in the period, for example:
    1. changes resulting from cash inflows from premiums received;
    2. changes that relate to investment components in the period;
      iia. changes resulting from cash flows from loans to policyholders;
    3. changes that relate to transaction-based taxes collected on behalf of third parties (such as premium taxes, value added taxes and goods and services taxes) (see paragraph B65(i));
    4. insurance finance income or expenses;
    5. insurance acquisition cash flows (see paragraph B125); and
    6. derecognition of liabilities transferred to a third party.
  2. changes that relate to services, but for which the entity does not expect consideration, ie increases and decreases in the loss component of the liability for remaining coverage (see paragraphs 47–52).

B123A To the extent that an entity derecognises an asset for cash flows other than insurance acquisition cash flows at the date of initial recognition of a group of insurance contracts (see paragraphs 38(c)(ii) and B66A), it shall recognise insurance revenue and expenses for the amount derecognised at that date.

B124 Consequently, insurance revenue for the period can also be analysed as the total of the changes in the liability for remaining coverage in the period that relates to services for which the entity expects to receive consideration. Those changes are:

  1. insurance service expenses incurred in the period (measured at the amounts expected at the beginning of the period), excluding:
    1. amounts allocated to the loss component of the liability for remaining coverage applying paragraph 51(a);
    2. repayments of investment components;
    3. amounts that relate to transaction-based taxes collected on behalf of third parties (such as premium taxes, value added taxes and goods and services taxes) (see paragraph B65(i)); and
    4. insurance acquisition expenses (see paragraph B125).
  2. the change in the risk adjustment for non-financial risk, excluding:
    1. changes included in insurance finance income or expenses applying paragraph 87;
    2. changes that adjust the contractual service margin because they relate to future service applying paragraphs 44(c) and 45(c); and
    3. amounts allocated to the loss component of the liability for remaining coverage applying paragraph 51(b).
  3. the amount of the contractual service margin recognised in profit or loss in the period, applying paragraphs 44(e) and 45(e).
  4. other amounts, if any, for example, experience adjustments for premium receipts other than those that relate to future service (see paragraph B96(a)).

B125 An entity shall determine insurance revenue related to insurance acquisition cash flows by allocating the portion of the premiums that relate to recovering those cash flows to each reporting period in a systematic way on the basis of the passage of time. An entity shall recognise the same amount as insurance service expenses.

B126 When an entity applies the premium allocation approach in paragraphs 55–58, insurance revenue for the period is the amount of expected premium receipts (excluding any investment component and adjusted to reflect the time value of money and the effect of financial risk, if applicable, applying paragraph 56) allocated to the period. The entity shall allocate the expected premium receipts to each period of coverage:

  1. on the basis of the passage of time; but
  2. if the expected pattern of release of risk during the coverage period differs significantly from the passage of time, then on the basis of the expected timing of incurred insurance service expenses.

B127 An entity shall change the basis of allocation between paragraphs B126(a) and B126(b) as necessary if facts and circumstances change.

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Last Updated on 10/02/2020 by 75385885

Excerpts from IFRS Standards come from the Official Journal of the European Union (© European Union, https://eur-lex.europa.eu). Individual jurisdictions around the world may require or permit the use of (locally authorised and/or amended) IFRS Standards for all or some publicly listed companies.  The information provided on this website is for general information and educational purposes only and should not be used as a substitute for professional advice. The specific status of IFRS Standards should be checked in each individual jurisdiction. Use at your own risk. Annualreporting is an independent website and it is not affiliated with, endorsed by, or in any other way associated with the IFRS Foundation. For official information concerning IFRS Standards, visit IFRS.org or the local representative in your jurisdiction.

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