IFRS 17IE Insurances presentation in profit or loss

Last Updated on 10/02/2020 by 75385885

IFRS 17IE Insurances presentation in profit or loss

Example 3—Presentation in the statement of profit or loss (paragraphs 49–50(a), 84–85, 100 and B120–B124)

IE29 This example illustrates how an entity could present the insurance service result, comprising insurance revenue minus insurance service expenses, in the statement of profit or loss.

IE30 This example also illustrates the disclosure requirements in paragraph 100 to reconcile the carrying amount of the insurance contracts: (a) from the opening to the closing balances by each component and (b) to the line items presented in the statement of profit or loss.

Assumptions

IE31 The illustrations of presentation requirements in Examples 3A and 3B are based on Examples 2A and 2B respectively.

IE32 In both Example 3A and Example 3B, the entity estimates in each year that an investment component of CU100 is to be excluded from insurance revenue and insurance service expenses presented in profit or loss, applying paragraph 85.

Example 3A—Changes in fulfilment cash flows that increase future profitability

Analysis

IE33 At the end of Year 1, the entity provided the reconciliation required by paragraph 100 between the amounts recognised in the statement of financial position and the statement of profit or loss, separately for the liability for remaining coverage and the liability for incurred claims. A possible format for that reconciliation for Year 1 is as follows:

the reconciliation required by paragraph 100 between the amounts recognised in the statement of financial position
  1. Insurance revenue of CU222 is:
    1. determined by the entity applying paragraph B123 as the change in the liability for remaining coverage, excluding changes that do not relate to services provided in the period, for example changes resulting from cash inflows from premiums received, changes related to investment components and changes related to insurance finance income or expenses. Thus, in this example insurance revenue is the difference between the opening and closing carrying amounts of the liability for remaining coverage of CU617, excluding insurance finance expenses of CU39, cash inflows of CU900 and the investment component of CU100 (CU222 = CU0 – CU617 + CU39 + CU900 – CU100).
    2. analysed by the entity applying paragraph B124 as the sum of the changes in the liability for remaining coverage in the period that relate 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 repayments of investment components;
      2. the change in the risk adjustment for non-financial risk, excluding changes that adjust the contractual service margin because they relate to future service ie the change caused by the release from risk; and
      3. the amount of contractual service margin recognised in profit or loss in the period.Thus, in this example insurance revenue is the sum of insurance service expenses of CU100, the change in the risk adjustment for non-financial risk caused by the release from risk of CU40 and the contractual service margin recognised in profit or loss of CU82 (CU222 = CU100 + CU40 + CU82).
  2. Applying paragraph 84, the entity presents insurance service expenses of CU100 as the claims incurred in the period of CU200 minus the investment component of CU100.
  3. Applying paragraph 85, the entity presents insurance revenue and insurance service expenses in profit or loss excluding amounts related to an investment component. In this example, the investment component equals CU100.
  4. Insurance finance expenses are the same as in Example 2. The whole amount of insurance finance expenses is related to the liability for remaining coverage because the liability for incurred claims is paid immediately after the expenses are incurred (see the assumptions in Example 2).

IE34 In Year 2, the actual claims of CU150 are lower than expected. The entity also revises its estimates relating to the fulfilment cash flows in Year 3. Consequently, the entity recognises in profit or loss the effect of the revised claims relating to Year 2, and adjusts the contractual service margin for changes in the fulfilment cash flows for Year 3. This change is only related to incurred claims and does not affect the investment component.

IE35 A possible format of the reconciliation required by paragraph 100 between the amounts recognised in the statement of financial position and the statement of profit or loss for Year 2 is as follows:

Reconciliation financial position and profit or loss
  1. Insurance revenue of CU261 is:
    1. determined by the entity applying paragraph B123 as the difference between the opening and closing carrying amounts of the liability for remaining coverage of CU334 (CU617 – CU283), excluding insurance finance expenses of CU27 and the investment component of CU100 (CU261 = CU334 + CU27 – CU100); and
    2. analysed by the entity applying paragraph B124 as the sum of the insurance service expenses of CU50 adjusted for the experience adjustment of CU50, the change in the risk adjustment for non-financial risk caused by the release from risk of CU40 and the contractual service margin recognised in profit or loss of CU121 (CU261 = CU50 + CU50 + CU40 + CU121).
  2. Applying paragraph 84, the entity presents insurance service expenses of CU50 as the claims incurred in the period of CU150 minus the investment component of CU100.
  3. Insurance finance expenses are the same as in Example 2A. The whole amount of insurance finance expenses is related to the liability for remaining coverage because the liability for incurred claims is paid immediately after the expenses are incurred.

IE36 In Year 3, there is required by paragraph 100 between the amounts recognised in the statement of financial position and the statement of profit or loss for Year 3 as follows:

no further change in estimates and the entity provides a possible format of the reconciliation
  1. Insurance revenue of CU196 is:
    1. determined by the entity applying paragraph B123 as the difference between the opening and closing carrying amounts of the liability for remaining coverage of CU283 (CU283 – CU0), excluding insurance finance expenses of CU13 and the investment component of CU100 (CU196 = CU283 + CU13 – CU100); and
    2. analysed by the entity applying paragraph B124 as the sum of the insurance service expenses of CU40, the change in the risk adjustment for non-financial risk caused by the release from risk of CU30 and the contractual service margin recognised in profit or loss of CU126 (CU196 = CU40 + CU30 + CU126).
  2. Applying paragraph 84, the entity presents insurance service expenses of CU40 as the claims incurred in the period of CU140 minus the investment component of CU100.
  3. Insurance finance expenses are the same as in Example 2A. The whole amount of insurance finance expenses is related to the liability for remaining coverage because the liability for incurred claims is paid immediately after the expenses are incurred.

IE37 The amounts presented in the statement of profit or loss corresponding to the amounts analysed in the tables above are:

statement of profit or loss corresponding to the amounts analysed in the tables
  1. Applying paragraph B120, the entity calculates the total insurance revenue for the group of insurance contracts of CU679 as the amount of premiums paid to the entity of CU900 adjusted for the financing effect of CU79 and excluding the investment component of CU300 (CU100 a year for 3 years) ie CU679 = CU900 + CU79 – CU300.
  2. For the purpose of this example, these numbers are not included because they are accounted for applying another Standard.

Example 3B—Changes in fulfilment cash flows that create an onerous group of insurance contracts

Analysis

IE38 This example uses the same assumptions for Year 1 as those in Example 3A. Consequently, the analysis of Year 1 is the same as for Example 3A. The presentation requirements for Year 1 are illustrated in Example 3A and are not repeated in Example 3B.

IE39 A possible format of the reconciliation required by paragraph 100 between the amounts recognised in the statement of financial position and the statement of profit or loss for Year 2 is as follows:

recognised in the statement of financial position and the statement of profit or loss
  1. Insurance revenue of CU140 is:
    1. determined by the entity applying paragraph B123 as the change in the liability for remaining coverage, excluding:
      1. changes that do not relate to services provided in the year, for example changes resulting from cash inflows from premiums received, changes related to investment components and changes related to insurance finance income or expenses; and
      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.Thus, in this example insurance revenue is the difference between the opening and closing carrying amounts of the liability for remaining coverage, excluding changes related to the loss component of CU213 (CU617 – CU404), excluding insurance finance expenses of CU27 and the repayment of the investment component of CU100, ie CU140 = CU213 + CU27 – CU100.
    2. analysed by the entity applying paragraph B124 as the sum of the changes in the liability for remaining coverage in the year that relate 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 amounts allocated to the loss component of the liability for remaining coverage and excluding repayments of investment components;
      2. the change in the risk adjustment for non-financial risk, excluding changes that adjust the contractual service margin because they relate to future service and amounts allocated to the loss component ie the change caused by the release from risk; and
      3. the amount of contractual service margin recognised in profit or loss in the period.Thus, in this example insurance revenue is the sum of the insurance service expenses of CU300 including experience adjustments of CU200 and the change in the risk adjustment for non-financial risk caused by the release from risk of CU40, ie CU140 = CU300 – CU200 + CU40.
  2. The entity revises the estimates of fulfilment cash flows for Year 3. The increase in fulfilment cash flows exceeds the carrying amount of the remaining contractual service margin, creating a loss of CU113 (see the table after paragraph IE26). Applying paragraph 49, the entity establishes the loss component of the liability for remaining coverage for an onerous group depicting that loss. The loss component determines the amounts presented in profit or loss as reversals of losses on onerous groups that are consequently excluded from determination of insurance revenue.
  3. Applying paragraph 84, the entity presents insurance service expenses of CU300 as the claims incurred in the period of CU400 minus the investment component of CU100.
  4. Insurance finance expenses are the same as in Example 2B. The whole amount of insurance finance expenses is related to the liability for remaining coverage because the liability for incurred claims is paid immediately after the expenses are incurred.

IE40 A possible format of the reconciliation required by paragraph 100 between the amounts recognised in the statement of financial position and the statement of profit or loss for Year 3 is as follows:

the reconciliation required by paragraph 100 between the amounts recognised in the statement of financial position 2
  1. Insurance revenue of CU320 is:
    1. determined by the entity applying paragraph B123 as the difference between the opening and closing carrying amounts of the liability for remaining coverage, excluding changes related to the loss component of CU404 (CU404 – CU0), insurance finance expenses of CU16 and the repayment of the investment component of CU100, ie CU320 = CU404 + CU16 – CU100.
    2. analysed by the entity applying paragraph B124 as the sum of the insurance service expenses for the incurred claims for the year of CU350 and the change in the risk adjustment for non-financial risk caused by the release from risk of CU88, excluding CU118 allocated to the loss component of the liability of remaining coverage, ie CU320 = CU350 + CU88 – CU118.
  2. Applying paragraph 50(a), the entity allocates on a systematic basis the subsequent changes in the fulfilment cash flows of the liability for remaining coverage between the loss component of the liability for remaining coverage and the liability for remaining coverage, excluding the loss component. In this example the allocation is based on the 22 per cent proportion of the loss component of the liability for remaining coverage of CU113 to the total liability for remaining coverage of CU517 (CU404 + CU113). Consequently, the entity allocates subsequent changes in fulfilment cash flows to the loss component of the liability for remaining coverage as follows:
    1. the change of the loss component of CU118 is the sum of:
      1. the estimates of the future cash flows released from the liability for remaining coverage for the year of CU99, calculated by multiplying the expected insurance service expenses for the incurred claims for the year plus the investment component of CU450 (CU350 + CU100) by 22 per cent; and
      2. the change in the risk adjustment for non-financial risk caused by the release from risk of CU19, calculated by multiplying the total such change of CU88 by 22 per cent.
    2. the insurance finance expenses of CU5 is determined by multiplying the total insurance finance expenses of CU21 by 22 per cent.See Example 8 for a more detailed calculation of losses in a group of insurance contracts subsequent to initial recognition.
  3. Applying paragraph 84, the entity presents insurance service expenses of CU350 as the claims incurred in the period of CU450 minus the investment component of CU100.
  4. Insurance finance expenses are the same as in Example 2B. The whole amount of insurance finance expenses is related to the liability for remaining coverage because the liability for incurred claims is paid immediately after the expenses are incurred.

IE41 The amounts presented in the statement of profit or loss corresponding to the amounts analysed in the tables above are:

The amounts presented in the statement of profit or loss corresponding
  1. Applying paragraph B120, the entity calculates the total insurance revenue for the group of insurance contracts of CU682 as the amount of premiums paid to the entity of CU900 adjusted for the financing effect of CU82 (insurance finance expenses of CU87 minus CU5 related to the loss component) and excluding the investment component of CU300 (CU100 per year for 3 years) ie CU682 = CU900 + CU82 – CU300.
  2. For the purpose of this example, these numbers are not included because they are accounted for applying another Standard.

 

 

Last Updated on 10/02/2020 by 75385885

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