The IASB considered whether to permit an entity to separate a non-insurance component when not required to do so by IFRS 17, for example, some investment components with interrelated cash flows, such as policy loans. Such components may have been separated when applying previous accounting practices. However, the IASB concluded that it would not be possible to separate a component in a non-arbitrary way that is not distinct from the insurance contract nor would such a result be desirable [IFRS 17 BC114].
IFRS 17 applies to all components of insurance contracts that are not required to be separated. Whereas IFRS 17 specifically prohibits voluntary separation of non-insurance components that are not required to be separated, IFRS 17 is silent on whether an entity is permitted to voluntarily separate ‘sub-insurance’ components of an insurance contract and to apply IFRS 17 to those components separately or together in new groups. This issue could be relevant in determining the groups under IFRS 17 (see ‘Portfolio of insurance contracts‘).
Generally, IFRS 4 permits voluntary separation of non-insurance components in an insurance contract where separation (referred to as “unbundling”) is not required [IFRS 17 10(b)]. Some entities used this option to voluntarily separate non-insurance components from their host insurance contracts and account for them under other IFRSs, for example, because their previous accounting policies applied under IFRS 4 required the separation of some of these components. In such cases, entities will have to assess whether separation of the non-insurance components is required under IFRS 17. Any such components not requiring mandatory separation will have to be accounted for together with the host insurance contract under IFRS 17.