IFRS 17IE Insurance acquisition cash flows

Last Updated on 10/02/2020 by 75385885

IFRS 17IE Insurance acquisition cash flows

Example 7—Insurance acquisition cash flows (paragraphs 106, B65(e) and B125)

IE72 This example illustrates the determination of insurance acquisition cash flows on initial recognition and the subsequent determination of insurance revenue, including the portion of premium related to the recovery of the insurance acquisition cash flows.

IE73 This example also illustrates the requirement to disclose the analysis of the insurance revenue recognised in the period applying paragraph 106.

Assumptions

IE74 An entity issues a group of insurance contracts with a coverage period of three years. The coverage period starts when the insurance contracts are issued.

IE75 On initial recognition, the entity determines the following:

  1. estimates of future cash inflows of CU900, paid immediately after initial recognition;
  2. estimates of future cash outflows, which comprise:
    1. estimates of future claims of CU600 (CU200 incurred and paid each year); and
    2. acquisition cash flows of CU120 (of which CU90 are cash flows directly attributable to the portfolio to which the contracts belong), are paid at the beginning of the coverage period.
  3. the risk adjustment for non-financial risk is CU15 and the entity expects to recognise the risk adjustment for non-financial risk in profit or loss evenly over the coverage period.

IE76 In this example for simplicity, it is assumed that:

  1. all expenses are incurred as expected;
  2. no contracts will lapse during the coverage period;
  3. there is no investment component; and
  4. all other amounts, including the effect of discounting, are ignored for simplicity.

Analysis

IE77 On initial recognition, the entity measures the group of insurance contracts and estimates the fulfilment cash flows at the end of each subsequent year as follows:

measures the group of insurance contracts and estimates the fulfilment cash flows

(a) Applying paragraph B65(e), estimates of the present value of the future cash flows of CU690 comprise expected claims of CU600 and an allocation of insurance acquisition cash flows directly attributable to the portfolio to which the contracts belong of CU90.

IE78 The entity recognises the contractual service margin and insurance acquisition cash flows in profit or loss for each year as follows:

recognises the contractual service margin and insurance acquisition cash flows
  1. Applying paragraphs 44(e) and B119, the entity recognises in profit or loss in each period an amount of the contractual service margin for a group of insurance contracts to reflect the transfer of services provided in that period. The amount recognised in each period is determined by the allocation of the contractual service margin remaining at the end of the reporting period (before any allocation) over the current and remaining coverage periods. In this example, the coverage provided in each period is the same because the number of contracts for which the coverage is provided in each period is the same. Consequently, the contractual service margin of CU195 is allocated equally in each year of coverage (ie CU65 = CU195 ÷ 3 years).
  2. Applying paragraph B125, the entity determines the insurance revenue related to insurance acquisition cash flows by allocating the portion of the premiums that relates to recovering those cash flows to each accounting period in a systematic way on the basis of the passage of time. The entity recognises the same amount as insurance service expenses. In this example, the coverage period of the contracts is three years, therefore the expenses recognised in profit or loss each year are CU30 (CU90 ÷ 3 years).

IE79 The entity recognises the following amounts in profit or loss:

The entity recognises the following amounts in profit or loss
  1. See the table after paragraph IE80 for more details on the components of insurance revenue.
  2. Applying paragraph 84, the entity presents insurance service expenses as incurred claims of CU200 in each year plus insurance acquisition cash flows of CU30 allocated to each year.
  3. Other expenses include acquisition cash flows that are not directly attributable to the portfolio of insurance contracts to which the contracts belong. They are calculated as the difference between the acquisition cash flows of CU120 and directly attributable insurance acquisition cash flows of CU90.

IE80 A possible format for the analysis of the insurance revenue required by paragraph 106 is as follows:

A possible format for the analysis of the insurance revenue required
  1. Applying paragraph B124, the entity measures those amounts as expected at the beginning of the year.
  2. This example illustrates the analysis of insurance revenue required by paragraph 106. See Example 3 for how to determine insurance revenue.

 

 

Last Updated on 10/02/2020 by 75385885

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