IFRS 17IE Accounting for groups of insurances

Last Updated on 10/02/2020 by 75385885

IFRS 17IE Accounting for groups of insurances

Key features of accounting for groups of insurance contracts

Example 1—Measurement on initial recognition (paragraphs 32, 38 and 47)

IE4 This example illustrates how an entity measures a group of insurance contracts on initial recognition that is onerous on initial recognition, and a group of insurance contracts that is not onerous on initial recognition.

Assumptions

IE5 An entity issues 100 insurance contracts with a coverage period of three years. The coverage period starts when the insurance contracts are issued. It is assumed, for simplicity, that no contracts will lapse before the end of the coverage period.

IE6 The entity expects to receive premiums of CU900 immediately after initial recognition; therefore, the estimate of the present value of the future cash inflows is CU900.

IE7 The entity estimates the annual cash outflows at the end of each year as follows:

  1. in Example 1A, the annual future cash outflows are CU200 (total CU600). The entity estimates the present value of the future cash flows to be CU545 using a discount rate of 5 per cent a year that reflects the characteristics of those cash flows determined applying paragraph 36.
  2. in Example 1B, the annual future cash outflows are CU400 (total CU1,200). The entity estimates the present value of the future cash flows to be CU1,089 using a discount rate of 5 per cent a year that reflects the characteristics of those cash flows determined applying paragraph 36.

IE8 The entity estimates the risk adjustment for non-financial risk on initial recognition as CU120.

IE9 In this example all other amounts are ignored, for simplicity.

Analysis

IE10 The measurement of the group of insurance contracts on initial recognition is as follows:

The measurement of the group of insurance contracts on initial recognition
  1. Paragraph 32 requires that the fulfilment cash flows comprise estimates of future cash flows, adjusted to reflect the time value of money and the financial risk related to those future cash flows and a risk adjustment for non-financial risk.
  2. Applying paragraph 38, the entity measures the contractual service margin on initial recognition of a group of insurance contracts at an amount that results in no income or expenses arising from the initial recognition of the fulfilment cash flows. Consequently, the contractual service margin equals CU235.
  3. Applying paragraph 47, the entity concludes that these insurance contracts on initial recognition are onerous because the fulfilment cash flows on initial recognition are a net outflow. Applying paragraph 16(a), the entity will group those contracts separately from contracts that are not onerous. The entity recognises a loss in profit or loss for the net outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows, and the contractual service margin of the group being zero.
  4. Applying paragraph 32, the entity measures the group of insurance contracts on initial recognition at the total of the fulfilment cash flows and the contractual service margin.

IE11 Immediately after initial recognition, the entity receives the premium of CU900 and the carrying amount of the group of insurance contracts changes as follows:

receives the premium of CU900 and the carrying amount of the group of insurance contracts changes

Last Updated on 10/02/2020 by 75385885

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