IFRS 17 at a glance
IFRS 17 introduces the new measurement model for insurance contracts and will be effective in 2023.
Similar to IFRS 4 Insurance Contracts with some new requirements, including as to the border with financial instruments accounting.
IFRS 4 Insurance Contracts applies, with limited exceptions, to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds. In light of the IASB’s comprehensive project on insurance contracts, the standard provides a temporary exemption from the requirements of some other IFRSs, including the requirement to consider IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors when selecting accounting policies for insurance contracts.
IFRS 4 applies to annual periods beginning on or after 1 January 2005. IFRS 4 will be replaced by IFRS 17 as of 1 January 2023.
The general measurement model
- The fulfilment cash flows, which represent the risk-adjusted present value of the entity’s rights and obligations to the policyholders, comprising:
- The contractual service margin (CSM), which represents the unearned profit that the entity will recognise as it provides services over the coverage period.
- The CSM includes the effects of cash flows occurring on the date of recognition and the effects of derecognising any assets or liabilities previously recognised before the group of contracts was recognised – e.g. asset for insurance acquisition cash flows paid.
- When the above results in a net outflow on initial recognition, the total net outflow is recognised as an immediate loss.