IFRS 17

INSURANCE CONTRACTS

OBJECTIVE

SCOPE

Combination of insurance contracts

Separating components from an insurance contract

LEVEL OF AGGREGATION OF INSURANCE CONTRACTS

RECOGNITION

Insurance acquisition cash flows

28A

MEASUREMENT

Measurement on initial recognition

Subsequent measurement

Onerous contracts

Premium allocation approach

Reinsurance contracts held

Investment contracts with discretionary participation features

MODIFICATION AND DERECOGNITION

Modification of an insurance contract

Derecognition

PRESENTATION IN THE STATEMENT OF FINANCIAL POSITION

RECOGNITION AND PRESENTATION IN THE STATEMENT(S) OF FINANCIAL PERFORMANCE

Insurance service result

Insurance finance income or expenses

DISCLOSURE

Explanation of recognised amounts

Significant judgements in applying IFRS 17

117

Nature and extent of risks that arise from contracts within the scope of IFRS 17

121

APPENDICES

A Defined terms

B Application guidance

C Effective date and transition

D Amendments to other IFRS Standards

APPROVAL BY THE BOARD OF

INSURANCE CONTRACTS

APPROVAL BY THE BOARD OF

AMENDMENTS TO IFRS 17

ISSUED IN JUNE 2020

APPROVAL BY THE BOARD OF

INITIAL APPLICATION OF IFRS 17 AND IFRS 9—COMPARATIVE INFORMATION

ISSUED IN DECEMBER 2021

FOR THE ACCOMPANYING GUIDANCE

and supporting material

LISTED BELOW, SEE PART B OF THIS EDITION

ILLUSTRATIVE EXAMPLES

IFRS 17 SUPPORTING MATERIAL

FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION

BASIS FOR CONCLUSIONS

Insurance Contracts

is set out in

paragraphs 1–132

and

appendices A–D

. All the paragraphs have equal authority. Paragraphs in

bold type

state the main principles. Terms defined in

Appendix A

are in

italics

the first time that they appear in the Standard. Definitions of other terms are given in the Glossary. The Standard should be read in the context of its objective and the

Basis for Conclusions

, the

Preface to IFRS Accounting Standards

and the

Conceptual Framework for Financial Reporting

Basis of Preparation of Financial Statements

provides a basis for selecting and applying accounting policies in the absence of explicit guidance.

[

Refer:

IAS 8 paragraphs 10–12

]

International Financial Reporting Standard 17

Insurance Contracts

Objective

Insurance Contracts

establishes principles for the recognition, measurement, presentation and disclosure of

insurance contracts

within the scope of the Standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.

[

Refer:

Basis for Conclusions paragraphs BC1–BC15

(reasons for issuing the Standard) and

paragraphs BC16–BC62

(explanation of the main features of the Standard), in particular,

paragraph BC16

explains the approach adopted by the Board.]

[Note: paragraph IN6 of the Introduction that accompanied the issue of IFRS 17 in May 2017 set out the key principles of IFRS 17. In addition to disclosure objectives, the key principles are that an entity:

(a)

identifies its insurance contracts.

(b)

separates specified embedded derivatives, distinct investment components and distinct performance obligations from the insurance contracts.

(c)

divides the contracts into groups it will recognise and measure at:

(i)

a risk-adjusted present value of the future cash flows; plus (if this value is a liability) or minus (if this value is an asset)

(ii)

an amount representing the unearned profit in the group of contracts (the contractual service margin).

(d)

recognises the profit from a group of insurance contracts over the period the entity provides insurance coverage, and as the entity is released from risk. If a group of contracts is or becomes loss-making, an entity recognises the loss immediately.

(e)

presents separately insurance revenue, insurance service expenses and insurance finance income or expenses.

Some insurance contracts provide investment-return or investment related-service in addition to insurance coverage. In June 2020, the Board amended IFRS 17 to require an entity to recognise the profit from a group of insurance contracts over the period the entity provides insurance contract services (Refer:

Basis for Conclusions paragraphs BC283A–BC283J

).]

An entity shall consider its substantive rights and obligations, whether they arise from a contract, law or regulation, when applying IFRS 17. A contract is an agreement between two or more parties that creates enforceable rights and obligations.

[

Refer:

Basis for Conclusions paragraph BC69

]

Enforceability of the rights and obligations in a contract is a matter of law. Contracts can be written, oral or implied by an entity’s customary business practices. Contractual terms include all terms in a contract, explicit or implied, but an entity shall disregard terms that have no commercial substance (ie no discernible effect on the economics of the contract). Implied terms in a contract include those imposed by law or regulation. The practices and processes for establishing contracts with customers vary across legal jurisdictions, industries and entities. In addition, they may vary within an entity (for example, they may depend on the class of customer or the nature of the promised goods or services).

Scope

[

Refer:

Basis for Conclusions paragraphs BC63–BC66

]

[IFRIC®

Update

, March 2025, Agenda Decision, ‘Guarantees Issued on Obligations of Other Entities’

The Committee received a request about how an entity accounts for guarantees that it issues.

...

Which IFRS Accounting Standards apply to issued guarantees?

...

Is the guarantee an insurance contract?

If an entity concludes that the guarantee it issues is not a financial guarantee contract, the entity considers whether the guarantee is an ‘insurance contract’ as defined in IFRS 17. IFRS 17 applies to all insurance contracts, regardless of the type of entity issuing them.

IFRS 17 defines an ‘insurance contract’ as ‘a contract under which one party (the issuer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder’. IFRS 17 defines ‘insurance risk’ as ‘risk, other than financial risk, transferred from the holder of a contract to the issuer’. Further application guidance on the definition of an ‘insurance contract’ and ‘significant insurance risk’ is provided in paragraphs B2–B30 of the Standard.

An entity also considers the scoping requirements in paragraphs 3–13 of IFRS 17, including:

paragraph 7 of IFRS 17—which excludes from the scope of the Standard various items that might meet the definition of an insurance contract; and

paragraphs 8–8A of IFRS 17—which permit an entity to choose to apply IFRS 17 to contracts that meet the definition of an insurance contract if the conditions set out in those paragraphs are met.

...

[The full text of the agenda decision is reproduced after the definition of a financial guarantee contract in Appendix A to IFRS 9.]]

An entity shall apply IFRS 17 to:

(a)

insurance contracts

, including

reinsurance contracts

, it issues;

(b)

reinsurance contracts it holds; and

(c)

investment contracts with discretionary participation features

it issues, provided the entity also issues insurance contracts.

[

Refer:

Basis for Conclusions paragraphs BC82–BC86

]

All references in IFRS 17 to

insurance contracts

also apply to:

(a)

reinsurance contracts

held, except:

(i)

for references to insurance contracts issued; and

(ii)

as described in

paragraphs 60–70A

(b)

investment contracts with discretionary participation features

as set out in

paragraph 3(c)

, except for the reference to insurance contracts in paragraph 3(c) and as described in

paragraph 71

All references in IFRS 17 to

insurance contracts

issued also apply to insurance contracts acquired by the entity in a transfer of insurance contracts or a business combination other than

reinsurance contracts

held.

Appendix A

defines an

insurance contract

and

paragraphs B2–B30 of Appendix B

provide guidance on the definition of an insurance contract.

An entity shall not apply IFRS 17 to:

(a)

warranties provided by a manufacturer, dealer or retailer in connection with the sale of its goods or services to a customer (see

Revenue from Contracts with Customers

[

Refer:

Basis for Conclusions paragraphs BC89 and BC90

]

(b)

employers’ assets and liabilities from employee benefit plans (see

IAS 19

Employee Benefits

and

IFRS 2

Share-based Payment

) and retirement benefit obligations reported by defined benefit retirement plans (see

IAS 26

Accounting and Reporting by Retirement Benefit Plans

(c)

contractual rights or contractual obligations contingent on the future use of, or the right to use, a non-financial item (for example, some licence fees, royalties, variable and other contingent lease payments and similar items: see IFRS 15,

IAS 38

Intangible Assets

and

IFRS 16

Leases

(d)

residual value guarantees provided by a manufacturer, dealer or retailer and a lessee’s residual value guarantees when they are embedded in a lease (see IFRS 15 and IFRS 16).

(e)

financial guarantee contracts, unless the issuer has previously asserted explicitly that it regards such contracts as

insurance contracts

and has used accounting applicable to insurance contracts. The issuer shall choose to apply either

IAS 32

Financial Instruments: Presentation

IFRS 7

Financial Instruments: Disclosures

and

Financial Instruments

to such financial guarantee contracts. The issuer may make that choice contract by contract, but the choice for each contract is irrevocable.

[

Refer:

Basis for Conclusions paragraphs BC91–BC94

]

(f)

contingent consideration payable or receivable in a business combination (see

IFRS 3

Business Combinations

(g)

insurance contracts in which the entity is the

policyholder

, unless those contracts are

reinsurance contracts

held (see

paragraph 3(b)

[

Refer:

Basis for Conclusions paragraph BC66

]

(h)

credit card contracts, or similar contracts that provide credit or payment arrangements, that meet the definition of an insurance contract if, and only if, the entity does not reflect an assessment of the

insurance risk

associated with an individual customer in setting the price of the contract with that customer (see

and other applicable IFRS Standards). However, if, and only if,

requires an entity to separate an insurance coverage component (see

paragraph 2.1(e)(iv) of

) that is embedded in such a contract, the entity shall apply

to that component.

[

Refer:

Basis for Conclusions paragraphs BC94A–BC94C

]

Some contracts meet the definition of an

insurance contract

but have as their primary purpose the provision of services for a fixed fee. An entity may choose to apply

instead of

to such contracts that it issues if, and only if, specified conditions are met. The entity may make that choice contract by contract, but the choice for each contract is irrevocable. The conditions are:

(a)

the entity does not reflect an assessment of the risk associated with an individual customer in setting the price of the contract with that customer;

(b)

the contract compensates the customer by providing services, rather than by making cash payments to the customer; and

(c)

the

insurance risk

transferred by the contract arises primarily from the customer’s use of services rather than from uncertainty over the cost of those services.

[

Refer:

Basis for Conclusions paragraphs BC95–BC97

]

Some contracts meet the definition of an insurance contract but limit the compensation for

insured events

to the amount otherwise required to settle the policyholder’s obligation created by the contract (for example, loans with death waivers). An entity shall choose to apply either

to such contracts that it issues unless such contracts are excluded from the scope of

paragraph 7

. The entity shall make that choice for each

portfolio of insurance contracts

, and the choice for each portfolio is irrevocable.

[

Refer:

Basis for Conclusions paragraphs BC94D–BC94F

and

BC398C–BC398F

]

Combination of insurance contracts

A set or series of

insurance contracts

with the same or a related counterparty may achieve, or be designed to achieve, an overall commercial effect. In order to report the substance of such contracts, it may be necessary to treat the set or series of contracts as a whole. For example, if the rights or obligations in one contract do nothing other than entirely negate the rights or obligations in another contract entered into at the same time with the same counterparty, the combined effect is that no rights or obligations exist.

Separating components from an insurance contract (

paragraphs B31–B35

)

[

Refer:

Basis for Conclusions paragraphs BC98–BC114

Illustrative Examples, Examples 4 and 5

]

insurance contract

may contain one or more components that would be within the scope of another Standard if they were separate contracts. For example, an insurance contract may include an

investment component

or a component for services other than

insurance contract services

(or both). An entity shall apply

paragraphs 11–13

to identify and account for the components of the contract.

An entity shall:

(a)

apply

to determine whether there is an embedded derivative to be separated and, if there is, how to account for that derivative.

[

Refer:

Basis for Conclusions paragraphs BC104–BC107

]

(b)

separate from a host

insurance contract

investment component

if, and only if, that investment component is distinct (see

paragraphs B31–B32

). The entity shall apply IFRS 9 to account for the separated investment component unless it is an investment contract with discretionary participation features within the scope of

(see

paragraph 3(c)

[

Refer:

Basis for Conclusions paragraphs BC108 and BC109

]

After applying

paragraph 11

to separate any cash flows related to embedded derivatives and distinct

investment components

, an entity shall separate from the host

insurance contract

any promise to transfer to a

policyholder

distinct goods or services other than insurance contract services, applying

paragraph 7 of IFRS 15

. The entity shall account for such promises applying

. In applying paragraph 7 of IFRS 15 to separate the promise, the entity shall apply

paragraphs B33–B35 of IFRS 17

and, on initial recognition, shall:

(a)

apply IFRS 15 to attribute the cash inflows between the insurance component and any promises to provide distinct goods or services other than insurance contract services; and

(b)

attribute the cash outflows between the insurance component and any promised goods or services other than insurance contract services, accounted for applying IFRS 15 so that:

(i)

cash outflows that relate directly to each component are attributed to that component; and

(ii)

any remaining cash outflows are attributed on a systematic and rational basis, reflecting the cash outflows the entity would expect to arise if that component were a separate contract.

[

Refer:

Basis for Conclusions paragraphs BC110–BC113

]

After applying

paragraphs 11–12

, an entity shall apply

to all remaining components of the host

insurance contract

. Hereafter, all references in IFRS 17 to embedded derivatives refer to derivatives that have not been separated from the host insurance contract and all references to

investment components

refer to investment components that have not been separated from the host insurance contract (except those references in

paragraphs B31–B32

[

Refer:

Basis for Conclusions paragraph BC114

]

Level of aggregation of insurance contracts

[

Refer:

Basis for Conclusions paragraphs BC51, BC52

and

BC115–BC139T

]

An entity shall identify

portfolios of insurance contracts

. A portfolio comprises contracts subject to similar risks and managed together. Contracts within a product line would be expected to have similar risks and hence would be expected to be in the same portfolio if they are managed together. Contracts in different product lines (for example single premium fixed annuities compared with regular term life assurance) would not be expected to have similar risks and hence would be expected to be in different portfolios.

[IFRIC®

Update

, September 2022, Agenda Decision, '

Insurance Contracts

and

The Effects of Changes in Foreign Exchange Rates

—Multi-currency Groups of Insurance Contracts'

The Committee received a request about how an entity accounts for insurance contracts with cash flows in more than one currency.

The request asked:

(a)

whether an entity considers currency exchange rate risks when applying IFRS 17 to identify portfolios of insurance contracts; and

(b)

how an entity applies IAS 21 in conjunction with IFRS 17 in measuring a group of insurance contracts with cash flows in more than one currency (a multi-currency group of insurance contracts).

Identifying portfolios of insurance contracts

IFRS 17 requires an entity to recognise and measure groups of insurance contracts. The first step in establishing groups of insurance contracts is to identify portfolios of insurance contracts. Paragraph 14 of IFRS 17 states that ‘a portfolio comprises contracts subject to similar risks and managed together’. The request asks whether currency exchange rate risks are among the risks an entity considers when assessing whether insurance contracts are ‘subject to similar risks’.

IFRS 17 defines financial risk and insurance risk (a non-financial risk). Financial risk is defined to include ‘the risk of a possible future change in … [a] currency exchange rate’. When IFRS 17 requires an entity to consider or reflect only particular types of risk (for example, only non-financial risk), it explicitly refers to the risks to be considered or reflected.

Therefore, the Committee concluded that, because paragraph 14 of IFRS 17 refers to ‘similar risks’ without specifying any particular types of risk, an entity is required to consider all risks—including currency exchange rate risks—when identifying portfolios of insurance contracts. However, ‘similar risks’ does not mean ‘identical risks’. Therefore, an entity could identify portfolios of contracts that include contracts subject to different currency exchange rate risks. The Committee observed that what an entity considers to be ‘similar risks’ will depend on the nature and extent of the risks in the entity’s insurance contracts.

...

Conclusion

In the light of its analysis, the Committee considered whether to add to the work plan a standard-setting project on how to account for the foreign currency aspects of insurance contracts. The Committee observed that it has not obtained evidence that such a project would be sufficiently narrow in scope that the International Accounting Standards Board (IASB) or the Committee could address it in an efficient manner. Consequently, the Committee decided not to add a standard-setting project to the work plan.]

Paragraphs 16–24

apply to

insurance contracts

issued. The requirements for the level of aggregation of

reinsurance contracts

held are set out in

paragraph 61

[

Refer:

Basis for Conclusions paragraph BC128

]

An entity shall divide a

portfolio of insurance contracts

issued into a minimum of:

(a)

a group of contracts

that are onerous at initial recognition, if any;

(b)

a group of contracts that at initial recognition have no significant possibility of becoming onerous subsequently, if any;

[

Refer:

Basis for Conclusions paragraphs BC130

and

BC139D

]

and

(c)

a group of the remaining contracts in the portfolio, if any.

If an entity has reasonable and supportable information to conclude that a set of contracts will all be in the same group applying

paragraph 16

, it may measure the set of contracts to determine if the contracts are onerous (see

paragraph 47

) and assess the set of contracts to determine if the contracts have no significant possibility of becoming onerous subsequently (see

paragraph 19

). If the entity does not have reasonable and supportable information to conclude that a set of contracts will all be in the same group, it shall determine the group to which contracts belong by considering individual contracts.

[

Refer:

Basis for Conclusions paragraph BC129

]

For contracts issued to which an entity applies the premium allocation approach (see

paragraphs 53–59

), the entity shall assume no contracts in the

portfolio

are onerous at initial recognition, unless facts and circumstances indicate otherwise. An entity shall assess whether contracts that are not onerous at initial recognition have no significant possibility of becoming onerous subsequently by assessing the likelihood of changes in applicable facts and circumstances.

[

Refer:

Basis for Conclusions paragraph BC128

]

For contracts issued to which an entity does not apply the premium allocation approach (see

paragraphs 53–54

), an entity shall assess whether contracts that are not onerous at initial recognition have no significant possibility of becoming onerous:

(a)

based on the likelihood of changes in assumptions which, if they occurred, would result in the contracts becoming onerous.

(b)

using information about estimates provided by the entity’s internal reporting. Hence, in assessing whether contracts that are not onerous at initial recognition have no significant possibility of becoming onerous:

(i)

an entity shall not disregard information provided by its internal reporting about the effect of changes in assumptions on different contracts on the possibility of their becoming onerous; but

(ii)

an entity is not required to gather additional information beyond that provided by the entity’s internal reporting about the effect of changes in assumptions on different contracts.

[

Refer:

Basis for Conclusions paragraph BC130

]

If, applying

paragraphs 14–19

, contracts within a

portfolio

would fall into different groups only because law or regulation specifically constrains the entity’s practical ability to set a different price or level of benefits for

policyholders

with different characteristics, the entity may include those contracts in the same group. The entity shall not apply this paragraph by analogy to other items.

[

Refer:

Basis for Conclusions paragraphs BC131–BC134

]

An entity is permitted to subdivide the groups described in

paragraph 16

. For example, an entity may choose to divide the

portfolios

into:

(a)

more groups that are not onerous at initial recognition—if the entity’s internal reporting provides information that distinguishes:

(i)

different levels of profitability; or

(ii)

different possibilities of contracts becoming onerous after initial recognition; and

(b)

more than one

group of contracts

that are onerous at initial recognition—if the entity’s internal reporting provides information at a more detailed level about the extent to which the contracts are onerous.

An entity shall not include contracts issued more than one year apart in the same group. To achieve this the entity shall, if necessary, further divide the groups described in

paragraphs 16–21

[

Refer:

Basis for Conclusions paragraphs BC136–BC138

and BC139F–BC139T]

group of insurance contracts

shall comprise a single contract if that is the result of applying

paragraphs 14–22

An entity shall apply the recognition and measurement requirements of IFRS 17 to the groups of contracts determined by applying

paragraphs 14–23

. An entity shall establish the groups at initial recognition and add contracts to the groups applying

paragraph 28

. The entity shall not reassess the composition of the groups subsequently. To measure a

group of contracts

, an entity may estimate the

fulfilment cash flows

at a higher level of aggregation than the group or

portfolio

, provided the entity is able to include the appropriate fulfilment cash flows in the measurement of the group, applying

paragraphs 32(a)

40(a)(i) and 40(b)

, by allocating such estimates to groups of contracts.

[

Refer:

Basis for Conclusions paragraph BC117

]

Recognition

An entity shall recognise a

group of insurance contracts

it issues from the earliest of the following:

(a)

the beginning of the

coverage period

of the group of contracts;

(b)

the date when the first payment from a

policyholder

in the group becomes due; and

(c)

for a group of onerous contracts, when the group becomes onerous.

[

Refer:

Basis for Conclusions paragraphs BC140–BC144

]

If there is no contractual due date, the first payment from the

policyholder

is deemed to be due when it is received. An entity is required to determine whether any contracts form a

group of onerous contracts

applying

paragraph 16

before the earlier of the dates set out in

paragraphs 25(a) and 25(b)

if facts and circumstances indicate there is such a group.

[

Refer:

Basis for Conclusions paragraph BC144

]

[Deleted]

In recognising a

group of insurance contracts

in a reporting period, an entity shall include only contracts that individually meet one of the criteria set out in

paragraph 25

and shall make estimates for the discount rates at the date of initial recognition (see

paragraph B73

) and the coverage units provided in the reporting period (see

paragraph B119

). An entity may include more contracts in the group after the end of a reporting period, subject to

paragraphs 14–22

. An entity shall add a contract to the group in the reporting period in which that contract meets one of the criteria set out in paragraph 25. This may result in a change to the determination of the discount rates at the date of initial recognition applying paragraph B73. An entity shall apply the revised rates from the start of the reporting period in which the new contracts are added to the group.

[

Refer:

Basis for Conclusions paragraphs BC139

and

BC145A

]

Insurance acquisition cash flows (

paragraphs B35A‒B35D

)

[

Refer:

Basis for Conclusions

paragraphs BC145

and

BC175–BC184K

]

28A

An entity shall allocate

insurance acquisition cash flows

to groups of insurance contracts using a systematic and rational method applying

paragraphs B35A‒B35B

[

Refer:

Basis for Conclusions paragraphs BC184A

and

BC184B

]

unless it chooses to recognise them as expenses applying

paragraph 59(a)

28B

An entity not applying

paragraph 59(a)

shall recognise as an asset insurance acquisition cash flows paid (or insurance acquisition cash flows for which a liability has been recognised applying another IFRS Standard) before the related group of insurance contracts is recognised. An entity shall recognise such an asset for each related group of insurance contracts.

28C

An entity shall derecognise an asset for insurance acquisition cash flows when the insurance acquisition cash flows are included in the measurement of the related group of insurance contracts applying

paragraph 38(c)(i)

paragraph 55(a)(iii)

28D

paragraph 28

applies, an entity shall apply paragraphs 28B‒28C in accordance with

paragraph B35C

28E

At the end of each reporting period, an entity shall assess the recoverability of an asset for insurance acquisition cash flows if facts and circumstances indicate the asset may be impaired (see

paragraph B35D

[

Refer:

Basis for Conclusions paragraph BC184I]

If an entity identifies an impairment loss, the entity shall adjust the carrying amount of the asset and recognise the impairment loss in profit or loss.

[

Refer:

Basis for Conclusions paragraph BC184J]

28F

An entity shall recognise in profit or loss a reversal of some or all of an impairment loss previously recognised applying paragraph 28E and increase the carrying amount of the asset, to the extent that the impairment conditions no longer exist or have improved.

Measurement (

paragraphs B36–B119F

)

[

Refer:

Basis for Conclusions paragraphs BC146–BC315L

]

An entity shall apply

paragraphs 30–52

to all

groups of insurance contracts

within the scope of IFRS 17, with the following exceptions:

(a)

for groups of insurance contracts meeting either of the criteria specified in

paragraph 53

, an entity may simplify the measurement of the group using the premium allocation approach in

paragraphs 55–59

(b)

for groups of

reinsurance contracts held

, an entity shall apply

paragraphs 32–46

as required by

paragraphs 63–70A

Paragraph 45

(on

insurance contracts with direct participation features

) and

paragraphs 47–52

(on onerous contracts) do not apply to groups of reinsurance contracts held.

(c)

for groups of

investment contracts with discretionary participation features

, an entity shall apply

paragraphs 32–52

as modified by

paragraph 71

When applying

The Effects of Changes in Foreign Exchange Rates

to a

group of insurance contracts

that generate cash flows in a foreign currency, an entity shall treat the group of contracts, including the

contractual service margin

, as a monetary item.

[

Refer:

Basis for Conclusions paragraphs BC277 and BC278

]

[IFRIC®

Update

, September 2022, Agenda Decision, '

Insurance Contracts

and

The Effects of Changes in Foreign Exchange Rates

—Multi-currency Groups of Insurance Contracts'

The Committee received a request about how an entity accounts for insurance contracts with cash flows in more than one currency.

The request asked:

(a)

whether an entity considers currency exchange rate risks when applying IFRS 17 to identify portfolios of insurance contracts; and

(b)

how an entity applies IAS 21 in conjunction with IFRS 17 in measuring a group of insurance contracts with cash flows in more than one currency (a multi-currency group of insurance contracts).

...

Measuring a multi-currency group of insurance contracts

An entity measures a group of insurance contracts at the total of the fulfilment cash flows and the contractual service margin. Paragraph 30 of IFRS 17 states that ‘when applying IAS 21 … to a group of insurance contracts that generate cash flows in a foreign currency, an entity shall treat the group of contracts, including the contractual service margin, as a monetary item’.

Paragraph 8 of IAS 21 defines monetary items as ‘units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency’ and paragraph 20 describes a foreign currency transaction as ‘a transaction that is denominated or requires settlement in a foreign currency’. Paragraphs 21–24 of IAS 21 require an entity:

(a)

to recognise on initial recognition a foreign currency transaction in the functional currency at the spot exchange rate at the date of the transaction;

(b)

to determine the carrying amount of a monetary item in conjunction with other relevant IFRS Accounting Standards; and

(c)

to translate at the end of the reporting period foreign currency monetary items into the functional currency using the closing rate.

The requirements in both IFRS 17 and IAS 21 refer to transactions or items that are denominated or require settlement in a single currency. IFRS Accounting Standards include no explicit requirements on how to determine the currency denomination of transactions or items with cash flows in more than one currency.

Therefore, the Committee observed that, in measuring a multi-currency group of insurance contracts, an entity:

(a)

applies all the measurement requirements in IFRS 17 to the group of insurance contracts, including the requirement in paragraph 30 to treat the group—including the contractual service margin—as a monetary item.

(b)

applies IAS 21 to translate at the end of the reporting period the carrying amount of the group—including the contractual service margin—into the entity’s functional currency at the closing rate (or rates).

(c)

uses its judgement to develop and apply an accounting policy that determines on initial recognition the currency or currencies in which the group—including the contractual service margin—is denominated (currency denomination). The entity could determine that the group—including the contractual service margin—is denominated in a single currency or in the multiple currencies of the cash flows in the group.

The entity develops an accounting policy on currency denomination that results in information that is relevant and reliable (as described in paragraph 10 of IAS 8

Accounting Policies, Changes in Accounting Estimates and Errors

[now

Basis of Preparation of Financial Statements

]) and is applied consistently for similar transactions, other events and conditions (paragraph 13 of IAS 8). The accounting policy is developed based on the entity’s specific circumstances and the terms of the contracts in the group. The entity cannot simply presume that the contractual service margin for the group is denominated in the functional currency. Such a presumption would, in effect, fail to treat the contractual service margin as a monetary item as required by paragraph 30 of IFRS 17.

Single-currency denomination versus multi-currency denomination

The entity’s accounting policy on currency denomination determines which effects of changes in exchange rates are changes in financial risk accounted for applying IFRS 17 and which of these effects are exchange differences accounted for applying IAS 21.

A single-currency denomination treats:

(a)

changes in exchange rates between the currency of the cash flows and the currency of the group of contracts as changes in financial risk that an entity accounts for applying IFRS 17; and

(b)

changes in exchange rates between the currency of the group of contracts and the functional currency as exchange differences that an entity accounts for applying IAS 21.

A multi-currency denomination treats all changes in exchange rates as exchange differences that an entity accounts for applying IAS 21.

In applying IFRS 17, there is a single contractual service margin for the group of insurance contracts. Appendix A to IFRS 17 defines the contractual service margin as representing ‘the unearned profit the entity will recognise as it provides insurance contract services under the insurance contracts in the group.’ Accordingly, under a multi-currency denomination, the entity would:

(a)

assess whether the group of contracts is onerous considering the contractual service margin as a single amount.

(b)

prevent the carrying amount of the contractual service margin being negative by, when necessary to do so, recognising a loss.

(c)

determine the amount of the contractual service margin to recognise in profit or loss by applying a single method of determining the coverage units provided in the current period and expected to be provided in the future to the amounts denominated in the multiple currencies. This would result in the entity allocating each of the currency amounts of the contractual service margin translated into the functional currency equally to each coverage unit.

Conclusion

In the financial statements of an entity that issues

insurance contracts

, the

fulfilment cash flows

shall not reflect the non-performance risk of that entity (non-performance risk is defined in

IFRS 13

Fair Value Measurement

[

Refer:

Basis for Conclusions paragraph BC197

]

Measurement on initial recognition (

paragraphs B36–B95F

)

On initial recognition, an entity shall measure a

group of insurance contracts

at the total of:

(a)

the

fulfilment cash flows

, which comprise:

(i)

estimates of future cash flows (

paragraphs 33–35

);

(ii)

an adjustment to reflect the time value of money and the

financial risks

related to the future cash flows, to the extent that the financial risks are not included in the estimates of the future cash flows (

paragraph 36

); and

(iii)

risk adjustment for non-financial risk

(

paragraph 37

(b)

the

contractual service margin

, measured applying

paragraphs 38–39

[

Refer:

Illustrative Examples, Example 1

]

Estimates of future cash flows (

paragraphs B36–B71

)

[

Refer:

Basis for Conclusions paragraphs BC19, BC20

and

BC147–BC184N

]

An entity shall include in the measurement of a

group of insurance contracts

all the future cash flows within the boundary of each contract in the group (see

paragraph 34

). Applying

paragraph 24

, an entity may estimate the future cash flows at a higher level of aggregation and then allocate the resulting

fulfilment cash flows

to individual groups of contracts. The estimates of future cash flows shall:

(a)

incorporate, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the amount, timing and uncertainty of those future cash flows (see

paragraphs B37–B41

). To do this, an entity shall estimate the expected value (ie the probability-weighted mean) of the full range of possible outcomes.

[

Refer:

Basis for Conclusions paragraphs BC148–BC152

]

(b)

reflect the perspective of the entity, provided that the estimates of any relevant market variables are consistent with observable market prices for those variables (see

paragraphs B42–B53

[

Refer:

Basis for Conclusions paragraphs BC153 and BC154

]

(c)

be current—the estimates shall reflect conditions existing at the measurement date, including assumptions at that date about the future (see

paragraphs B54–B60

[

Refer:

Basis for Conclusions paragraphs BC155 and BC156

]

(d)

be explicit—the entity shall estimate the adjustment for non-financial risk separately from the other estimates (see

paragraph B90

). The entity also shall estimate the cash flows separately from the adjustment for the time value of money and

financial risk

, unless the most appropriate measurement technique combines these estimates (see

paragraph B46

[

Refer:

Basis for Conclusions paragraph BC157

]

Cash flows are within the boundary of an

insurance contract

if they arise from substantive rights and obligations that exist during the reporting period in which the entity can compel the

policyholder

to pay the premiums or in which the entity has a substantive obligation to provide the policyholder with insurance contract services (see

paragraphs B61–B71

). A substantive obligation to provide insurance contract services ends when:

(a)

the entity has the practical ability to reassess the risks of the particular policyholder and, as a result, can set a price or level of benefits that fully reflects those risks; or

(b)

both of the following criteria are satisfied:

(i)

the entity has the practical ability to reassess the risks of the

portfolio of insurance contracts

that contains the contract and, as a result, can set a price or level of benefits that fully reflects the risk of that portfolio; and

(ii)

the pricing of the premiums up to the date when the risks are reassessed does not take into account the risks that relate to periods after the reassessment date.

[

Refer:

Basis for Conclusions paragraphs BC159–BC164

]

An entity shall not recognise as a liability or as an asset any amounts relating to expected premiums or expected claims outside the boundary of the

insurance contract

. Such amounts relate to future insurance contracts.

[

Refer:

Basis for Conclusions paragraphs BC159–BC164

]

Discount rates (

paragraphs B72–B85

)

An entity shall adjust the estimates of future cash flows to reflect the time value of money and the

financial risks

related to those cash flows, to the extent that the financial risks are not included in the estimates of cash flows. The discount rates applied to the estimates of the future cash flows described in

paragraph 33

shall:

(a)

reflect the time value of money, the characteristics of the cash flows and the liquidity characteristics of the

insurance contracts

;

(b)

be consistent with observable current market prices (if any) for financial instruments with cash flows whose characteristics are consistent with those of the insurance contracts, in terms of, for example, timing, currency and liquidity; and

(c)

exclude the effect of factors that influence such observable market prices but do not affect the future cash flows of the insurance contracts.

[

Refer:

Basis for Conclusions paragraphs BC185–BC205B

]

Risk adjustment for non-financial risk (

paragraphs B86–B92

)

An entity shall adjust the estimate of the present value of the future cash flows to reflect the compensation that the entity requires for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk.

[

Refer:

Basis for Conclusions paragraphs BC206–BC214C

]

Contractual service margin

The

contractual service margin

is a component of the asset or liability for the

group of insurance contracts

that represents the unearned profit the entity will recognise as it provides insurance contract services in the future. An entity shall measure the contractual service margin on initial recognition of a group of insurance contracts at an amount that, unless

paragraph 47

(on onerous contracts) or

paragraph B123A

(on insurance revenue relating to

paragraph 38(c)(ii)

) applies, results in no income or expenses arising from:

(a)

the initial recognition of an amount for the

fulfilment cash flows

, measured by applying

paragraphs 32–37

;

(b)

any cash flows arising from the contracts in the group at that date;

(c)

the derecognition at the date of initial recognition of:

(i)

any asset for

insurance acquisition cash flows

applying

paragraph 28C

; and

(ii)

any other asset or liability previously recognised for cash flows related to the group of contracts as specified in

paragraph B66A

[

Refer:

Basis for Conclusions paragraphs BC184L–BC184N]

[

Refer:

Basis for Conclusions paragraphs BC18

BC21

BC218 and BC219

Illustrative Examples, Example 1

]

For

insurance contracts

acquired in a transfer of insurance contracts or in a business combination within the

scope of IFRS 3

, an entity shall apply

paragraph 38

in accordance with

paragraphs B93–B95F

[

Refer:

Basis for Conclusions paragraphs BC323–BC327A

Illustrative Examples, Examples 13 and 14

IFRS 17 Supporting Material (see Part B)—one-page summary of the accounting model in IFRS 17

published by the staff of the IFRS Foundation]

Subsequent measurement

[

Refer:

Basis for Conclusions paragraphs BC18–BC20

and

BC22–BC26

Illustrative Examples, Examples 2 and 3

]

The carrying amount of a

group of insurance contracts

at the end of each reporting period shall be the sum of:

(a)

the

liability for remaining coverage

comprising:

(i)

the

fulfilment cash flows

related to future service allocated to the group at that date, measured applying

paragraphs 33–37

and

B36–B92

;

(ii)

the

contractual service margin

of the group at that date, measured applying

paragraphs 43–46

; and

(b)

the

liability for incurred claims

, comprising the fulfilment cash flows related to past service allocated to the group at that date, measured applying

paragraphs 33–37

and

B36–B92

An entity shall recognise income and expenses for the following changes in the carrying amount of the

liability for remaining coverage

(a)

insurance revenue—for the reduction in the liability for remaining coverage because of services provided in the period, measured applying

paragraphs B120–B124

;

[

Refer:

Basis for Conclusions paragraphs BC27–BC37

]

(b)

insurance service expenses—for losses on groups of onerous contracts, and reversals of such losses (see

paragraphs 47–52

); and

(c)

insurance finance income or expenses—for the effect of the time value of money and the effect of

financial risk

as specified in

paragraph 87

[

Refer:

Basis for Conclusions paragraphs BC38–BC41

]

An entity shall recognise income and expenses for the following changes in the carrying amount of the

liability for incurred claims

(a)

insurance service expenses—for the increase in the liability because of claims and expenses incurred in the period, excluding any

investment components

;

[

Refer:

Basis for Conclusions paragraphs BC33–BC34A

]

(b)

insurance service expenses—for any subsequent changes in

fulfilment cash flows

relating to incurred claims and incurred expenses; and

(c)

insurance finance income or expenses—for the effect of the time value of money and the effect of

financial risk

as specified in

paragraph 87

[

Refer:

Basis for Conclusions paragraphs BC38–BC41

]

Contractual service margin (

paragraphs B96–B119B

)

[

Refer:

Basis for Conclusions paragraphs BC18

BC22–BC26

BC59

BC60

and

BC220–BC283J

]

The

contractual service margin

at the end of the reporting period represents the profit in the

group of insurance contracts

that has not yet been recognised in profit or loss because it relates to the future service to be provided under the contracts in the group.

[

Refer:

Basis for Conclusions paragraphs BC18

and

BC22–BC26

]

For

insurance contracts without direct participation features

, the carrying amount of the

contractual service margin

of a

group of contracts

at the end of the reporting period equals the carrying amount at the start of the reporting period adjusted for:

(a)

the effect of any new contracts added to the group (see

paragraph 28

);

(b)

interest accreted on the carrying amount of the contractual service margin during the reporting period, measured at the discount rates specified in

paragraph B72(b)

;

[

Refer:

Basis for Conclusions paragraphs BC270–BC276E

]

(c)

the changes in

fulfilment cash flows

relating to future service as specified in

paragraphs B96–B100

[

Refer:

Basis for Conclusions paragraphs BC222–BC237

and

Illustrative Examples, Example 2A paragraph IE20

]

except to the extent that:

(i)

such increases in the fulfilment cash flows exceed the carrying amount of the contractual service margin, giving rise to a loss (see

paragraph 48(a)

); or

(ii)

such decreases in the fulfilment cash flows are allocated to the loss component of the

liability for remaining coverage

applying

paragraph 50(b)

[

Refer:

Basis for Conclusions paragraphs BC284–BC287

Illustrative Examples, Example 2B paragraph IE26

and

Example 8

]

(d)

the effect of any currency exchange differences on the contractual service margin;

[

Refer:

Basis for Conclusions paragraph BC277

]

and

(e)

the amount recognised as insurance revenue because of the transfer of insurance contract services in the period, 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 period

applying

paragraph B119

[

Refer:

Basis for Conclusions paragraphs BC279–BC283J

]

[

Refer:

Illustrative Examples, Examples 2

and

]

For

insurance contracts with direct participation features

(see

paragraphs B101–B118

), the carrying amount of the

contractual service margin

of a

group of contracts

at the end of the reporting period equals the carrying amount at the start of the reporting period adjusted for the amounts specified in subparagraphs (a)–(e) below. An entity is not required to identify these adjustments separately. Instead, a combined amount may be determined for some, or all, of the adjustments. The adjustments are:

(a)

the effect of any new contracts added to the group (see

paragraph 28

);

(b)

the change in the amount of the entity’s share of the fair value of the

underlying items

(see

paragraph B104(b)(i)

[

Refer:

Basis for Conclusions paragraph BC276

]

except to the extent that:

(i)

paragraph B115

(on risk mitigation) applies;

[

Refer:

Basis for Conclusions paragraphs BC250–BC256H

]

(ii)

the decrease in the amount of the entity’s share of the fair value of the underlying items exceeds the carrying amount of the contractual service margin, giving rise to a loss (see

paragraph 48

);

[

Refer:

Basis for Conclusions paragraph BC247

]

(iii)

the increase in the amount of the entity’s share of the fair value of the underlying items reverses the amount in (ii).

[

Refer:

Basis for Conclusions paragraph BC247

]

(c)

the changes in

fulfilment cash flows

relating to future service, as specified in

paragraphs B101–B118

[

Refer:

Basis for Conclusions paragraphs BC222–BC226

and

BC240–BC246

]

except to the extent that:

(i)

paragraph B115

(on risk mitigation) applies;

[

Refer:

Basis for Conclusions paragraphs BC250–BC256H

]

(ii)

such increases in the fulfilment cash flows exceed the carrying amount of the contractual service margin, giving rise to a loss (see

paragraph 48

);

[

Refer:

Basis for Conclusions paragraph BC247

]

(iii)

such decreases in the fulfilment cash flows are allocated to the loss component of the

liability for remaining coverage

applying

paragraph 50(b)

[

Refer:

Basis for Conclusions paragraph BC247

]

(d)

the effect of any currency exchange differences arising on the contractual service margin;

[

Refer:

Basis for Conclusions paragraph BC277

]

and

(e)

coverage period

applying

paragraph B119

[

Refer:

Basis for Conclusions paragraphs BC279–BC283A

]

[

Refer:

Illustrative Examples, Example 9

and

Example 16 paragraph IE184

]

Some changes in the

contractual service margin

offset changes in the

fulfilment cash flows

for the

liability for remaining coverage

, resulting in no change in the total carrying amount of the liability for remaining coverage. To the extent that changes in the contractual service margin do not offset changes in the fulfilment cash flows for the liability for remaining coverage, an entity shall recognise income and expenses for the changes, applying

paragraph 41

[

Refer:

Basis for Conclusions paragraphs BC24–BC26

Illustrative Examples, Examples 2

and

]

Onerous contracts

[

Refer:

Basis for Conclusions paragraphs BC21

and

BC284–BC287

]

insurance contract

is onerous at the date of initial recognition if the

fulfilment cash flows

allocated to the contract, any previously recognised insurance

acquisition cash flows

and any cash flows arising from the contract at the date of initial recognition in total are a net outflow. Applying

paragraph 16(a)

, an entity shall group such contracts separately from contracts that are not onerous. To the extent that

paragraph 17

applies, an entity may identify the

group of onerous contracts

by measuring a set of contracts rather than individual contracts.

[

Refer:

Basis for Conclusions paragraph BC129

]

An entity shall recognise a loss in profit or loss for the net outflow for the group of onerous contracts, 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.

[

Refer:

Illustrative Examples, Example 1

]

group of insurance contracts

becomes onerous (or more onerous) on subsequent measurement if the following amounts exceed the carrying amount of the

contractual service margin

(a)

unfavourable changes relating to future service in the

fulfilment cash flows

allocated to the group arising from changes in estimates of future cash flows and the risk adjustment for non-financial risk; and

[

Refer:

Illustrative Examples, Example 2B

]

(b)

for a group of

insurance contracts with direct participation feature

s, the decrease in the amount of the entity’s share of the fair value of the

underlying items

Applying

paragraphs 44(c)(i)

45(b)(ii)

and

45(c)(ii)

, an entity shall recognise a loss in profit or loss to the extent of that excess.

An entity shall establish (or increase) a loss component of the

liability for remaining coverage

for an onerous group depicting the losses recognised applying

paragraphs 47–48

. The loss component determines the amounts that are presented in profit or loss as reversals of losses on onerous groups and are consequently excluded from the determination of insurance revenue.

[

Refer:

Illustrative Examples, Examples 3B

and

]

After an entity has recognised a loss on an onerous

group of insurance contracts

, it shall allocate:

(a)

the subsequent changes in

fulfilment cash flows

of the

liability for remaining coverage

specified in

paragraph 51

on a systematic basis between:

(i)

the loss component of the liability for remaining coverage; and

(ii)

the liability for remaining coverage, excluding the loss component.

(b)

solely to the loss component until that component is reduced to zero:

(i)

any subsequent decrease relating to future service in fulfilment cash flows allocated to the group arising from changes in estimates of future cash flows and the risk adjustment for non-financial risk; and

(ii)

any subsequent increases in the amount of the entity’s share of the fair value of the

underlying items

Applying

paragraphs 44(c)(ii)

45(b)(iii)

and

45(c)(iii)

, an entity shall adjust the

contractual service margin

only for the excess of the decrease over the amount allocated to the loss component.

[

Refer:

Illustrative Examples, Examples 3B

and

]

The subsequent changes in the

fulfilment cash flows

of the

liability for remaining coverage

to be allocated applying

paragraph 50(a)

are:

(a)

estimates of the present value of future cash flows for claims and expenses released from the liability for remaining coverage because of incurred insurance service expenses;

(b)

changes in the

risk adjustment for non-financial risk

recognised in profit or loss because of the release from risk; and

(c)

insurance finance income or expenses.

The systematic allocation required by

paragraph 50(a)

shall result in the total amounts allocated to the loss component in accordance with

paragraphs 48–50

being equal to zero by the end of the

coverage period

of a

group of contracts

Premium allocation approach

[

Refer:

Basis for Conclusions paragraphs BC288–BC295

]

An entity may simplify the measurement of a

group of insurance contracts

using the premium allocation approach set out in

paragraphs 55–59

if, and only if, at the inception of the group:

(a)

the entity reasonably expects that such simplification would produce a measurement of the

liability for remaining coverage

for the group that would not differ materially from the one that would be produced applying the requirements in

paragraphs 32–52

; or

(b)

the

coverage period

of each contract in the group (including insurance contract services arising from all premiums within the contract boundary determined at that date applying

paragraph 34

) is one year or less.

[

Refer:

Basis for Conclusions paragraph BC291

]

The criterion in

paragraph 53(a)

is not met if at the inception of the group an entity expects significant variability in the

fulfilment cash flows

that would affect the measurement of the

liability for remaining coverage

during the period before a claim is incurred. Variability in the fulfilment cash flows increases with, for example:

(a)

the extent of future cash flows relating to any derivatives embedded in the contracts; and

(b)

the length of the

coverage period

of the

group of contracts

Using the premium allocation approach, an entity shall measure the

liability for remaining coverage

as follows:

(a)

on initial recognition, the carrying amount of the liability is:

(i)

the premiums, if any, received at initial recognition;

(ii)

minus any

insurance acquisition cash flows

at that date, unless the entity chooses to recognise the payments as an expense applying

paragraph 59(a)

; and

(iii)

plus or minus any amount arising from the derecognition at that date of:

any asset for insurance acquisition cash flows applying

paragraph 28C

; and

any other asset or liability previously recognised for cash flows related to the group of contracts as specified in

paragraph B66A

(b)

at the end of each subsequent reporting period, the carrying amount of the liability is the carrying amount at the start of the reporting period:

(i)

plus the premiums received in the period;

(ii)

minus insurance acquisition cash flows; unless the entity chooses to recognise the payments as an expense applying

paragraph 59(a)

;

(iii)

plus any amounts relating to the amortisation of insurance acquisition cash flows recognised as an expense in the reporting period; unless the entity chooses to recognise insurance acquisition cash flows as an expense applying

paragraph 59(a)

;

(iv)

plus any adjustment to a financing component, applying

paragraph 56

;

(v)

minus the amount recognised as insurance revenue for services provided in that period (see

paragraph B126

); and

(vi)

minus any

investment component

paid or transferred to the

liability for incurred claims

[

Refer:

Illustrative Examples, Example 10

]

insurance contracts

in the group have a significant financing component, an entity shall adjust the carrying amount of the

liability for remaining coverage

to reflect the time value of money and the effect of

financial risk

using the discount rates specified in

paragraph 36

, as determined on initial recognition.

[

Refer:

Basis for Conclusions paragraph BC293

]

The entity is not required to adjust the carrying amount of the liability for remaining coverage to reflect the time value of money and the effect of financial risk if, at initial recognition, the entity expects that the time between providing each part of the services and the related premium due date is no more than a year.

[

Refer:

Basis for Conclusions paragraph BC292(a)

]

[

Refer:

Illustrative Examples, Example 10

]

If at any time during the

coverage period

, facts and circumstances indicate that a

group of insurance contracts

is onerous

[

Refer:

Basis for Conclusions paragraph BC292(b)

]

, an entity shall calculate the difference between:

(a)

the carrying amount of the

liability for remaining coverage

determined applying

paragraph 55

; and

(b)

the

fulfilment cash flows

that relate to remaining coverage of the group, applying

paragraphs 33–37

and

B36–B92

. However, if, in applying

paragraph 59(b)

, the entity does not adjust the

liability for incurred claims

for the time value of money and the effect of

financial risk

, it shall not include in the fulfilment cash flows any such adjustment.

To the extent that the

fulfilment cash flows

described in

paragraph 57(b)

exceed the carrying amount described in

paragraph 57(a)

, the entity shall recognise a loss in profit or loss and increase the

liability for remaining coverage

In applying the premium allocation approach, an entity:

(a)

may choose to recognise any

insurance acquisition cash flows

as expenses when it incurs those costs, provided that the

coverage period

of each contract in the group at initial recognition is no more than one year.

[

Refer:

Basis for Conclusions paragraph BC292(c)

]

(b)

shall measure the

liability for incurred claims

for the

group of insurance contracts

at the

fulfilment cash flows

relating to incurred claims, applying

paragraphs 33–37

and

B36–B92

. However, the entity is not required to adjust future cash flows for the time value of money and the effect of

financial risk

if those cash flows are expected to be paid or received in one year or less from the date the claims are incurred.

[

Refer:

Basis for Conclusions paragraph BC294

]

[

Refer:

Illustrative Examples, Example 10

]

Reinsurance contracts

held

[

Refer:

Basis for Conclusions paragraphs BC296–BC315L

]

The requirements in IFRS 17 are modified for

reinsurance contracts

held, as set out in

paragraphs 61–70A

An entity shall divide

portfolios of reinsurance contracts

held applying

paragraphs 14–24

, except that the references to onerous contracts in those paragraphs shall be replaced with a reference to contracts on which there is a net gain on initial recognition.

[

Refer:

Basis for Conclusions paragraph BC128

]

For some reinsurance contracts held, applying paragraphs 14–24 will result in a group that comprises a single contract.

Recognition

[

Refer:

Basis for Conclusions paragraphs BC304–BC305A]

Instead of applying

paragraph 25

, an entity shall recognise a group of reinsurance contracts held from the earlier of the following:

(a)

the beginning of the coverage period of the group of reinsurance contracts held; and

(b)

the date the entity recognises an onerous group of underlying insurance contracts applying

paragraph 25(c)

, if the entity entered into the related reinsurance contract held in the group of reinsurance contracts held at or before that date.

[

Refer:

Basis for Conclusions paragraph BC305A

]

62A

Notwithstanding

paragraph 62(a)

, an entity shall delay the recognition of a group of reinsurance contracts held that provide proportionate coverage until the date that any underlying insurance contract is initially recognised, if that date is later than the beginning of the coverage period of the group of reinsurance contracts held.

[

Refer:

Basis for Conclusions paragraph BC304(a)

]

Measurement

In applying the measurement requirements of

paragraphs 32–36

reinsurance contracts

held, to the extent that the underlying contracts are also measured applying those paragraphs, the entity shall use consistent assumptions to measure the estimates of the present value of the future cash flows for the group of reinsurance contracts held and the estimates of the present value of the future cash flows for the group(s) of underlying insurance contracts. In addition, the entity shall include in the estimates of the present value of the future cash flows for the group of reinsurance contracts held the effect of any risk of non-performance by the issuer of the reinsurance contract, including the effects of collateral and losses from disputes.

[

Refer:

Basis for Conclusions paragraphs BC307–BC309F

]

Instead of applying

paragraph 37

, an entity shall determine the

risk adjustment for non-financial risk

so that it represents the amount of risk being transferred by the holder of the group of

reinsurance contracts

to the issuer of those contracts.

The requirements of

paragraph 38

that relate to determining the

contractual service margin

on initial recognition are modified to reflect the fact that for a group of

reinsurance contracts

held there is no unearned profit but instead a net cost or net gain on purchasing the reinsurance. Hence, unless

paragraph 65A

applies, on initial recognition the entity shall recognise any net cost or net gain on purchasing the group of reinsurance contracts held as a contractual service margin measured at an amount equal to the sum of:

(a)

the

fulfilment cash flows

;

(b)

the amount derecognised at that date of any asset or liability previously recognised for cash flows related to the group of reinsurance contracts held;

(c)

any cash flows arising at that date; and

(d)

any income recognised in profit or loss applying

paragraph 66A

[

Refer:

Basis for Conclusions paragraphs BC310–BC315

Illustrative Examples, Example 11

]

65A

If the net cost of purchasing reinsurance coverage relates to events that occurred before the purchase of the group of reinsurance contracts held, notwithstanding the requirements of

paragraph B5

, the entity shall recognise such a cost immediately in profit or loss as an expense.

[

Refer:

Basis for Conclusions paragraph BC312

]

Instead of applying

paragraph 44

, an entity shall measure the

contractual service margin

at the end of the reporting period for a group of

reinsurance contracts

held as the carrying amount determined at the start of the reporting period, adjusted for:

(a)

the effect of any new contracts added to the group (see

paragraph 28

);

(b)

interest accreted on the carrying amount of the contractual service margin, measured at the discount rates specified in

paragraph B72(b)

;

(ba)

income recognised in profit or loss in the reporting period applying

paragraph 66A

;

(bb)

reversals of a loss-recovery component recognised applying

paragraph 66B

(see

paragraph B119F

) to the extent those reversals are not changes in the fulfilment cash flows of the group of reinsurance contracts held;

(c)

changes in the

fulfilment cash flows

, measured at the discount rates specified in

paragraph B72(c)

, to the extent that the change relates to future service, unless:

(i)

the change results from a change in fulfilment cash flows allocated to a group of underlying insurance contracts that does not adjust the contractual service margin for the group of underlying insurance contracts; or

(ii)

the change results from applying

paragraphs 57‒58

(on onerous contracts), if the entity measures a group of underlying insurance contracts applying the premium allocation approach.

[

Refer:

Basis for Conclusions paragraphs BC314 and BC315

Illustrative Examples, Examples 12A

and

12B

]

(d)

the effect of any currency exchange differences arising on the contractual service margin;

[

Refer:

Basis for Conclusions paragraph BC277

]

and

(e)

the amount recognised in profit or loss because of services received in the period, 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 period

of the group of reinsurance contracts held, applying

paragraph B119

[

Refer:

Basis for Conclusions paragraphs BC279–BC283

]

66A

An entity shall adjust the contractual service margin of a group of reinsurance contracts held, and as a result recognise income, when the entity recognises a loss on initial recognition of an onerous group of underlying insurance contracts or on addition of onerous underlying insurance contracts to a group (see

paragraphs B119C‒B119E

[

Refer:

Basis for Conclusions paragraphs BC315A‒BC315C

Illustrative Examples, Example 12C]

66B

An entity shall establish (or adjust) a loss-recovery component of the asset for remaining coverage for a group of reinsurance contracts held depicting the recovery of losses recognised applying

paragraphs 66(c)(i)‒(ii)

and

66A

. The loss-recovery component determines the amounts that are presented in profit or loss as reversals of recoveries of losses from reinsurance contracts held and are consequently excluded from the allocation of premiums paid to the reinsurer (see

paragraph B119F

[

Refer:

Illustrative Examples, Example 12C ]

Changes in the

fulfilment cash flows

that result from changes in the risk of non-performance by the issuer of a

reinsurance contract

held do not relate to future service and shall not adjust the

contractual service margin

[

Refer:

Basis for Conclusions paragraph BC309

]

Reinsurance contracts

held cannot be onerous. Accordingly, the requirements of

paragraphs 47–52

do not apply.

[

Refer:

Basis for Conclusions paragraph BC311

]

Premium allocation approach for

reinsurance contracts

held

[

Refer:

Basis for Conclusions paragraphs BC288–BC295

]

An entity may use the premium allocation approach set out in

paragraphs 55–56

and

(adapted to reflect the features of

reinsurance contracts

held that differ from

insurance contracts

issued, for example the generation of expenses or reduction in expenses rather than revenue) to simplify the measurement of a group of reinsurance contracts held, if at the inception of the group:

(a)

the entity reasonably expects the resulting measurement would not differ materially from the result of applying the requirements in

paragraphs 63–68

; or

(b)

the

coverage period

of each contract in the group of reinsurance contracts held (including insurance coverage from all premiums within the contract boundary determined at that date applying

paragraph 34

) is one year or less.

An entity cannot meet the condition in

paragraph 69(a)

if, at the inception of the group, an entity expects significant variability in the

fulfilment cash flows

that would affect the measurement of the asset for remaining coverage during the period before a claim is incurred. Variability in the fulfilment cash flows increases with, for example:

(a)

the extent of future cash flows relating to any derivatives embedded in the contracts; and

(b)

the length of the

coverage period

of the group of

reinsurance contracts

held.

70A

If an entity measures a group of reinsurance contracts held applying the premium allocation approach, the entity shall apply

paragraph 66A

by adjusting the carrying amount of the asset for remaining coverage instead of adjusting the contractual service margin.

Investment contracts with discretionary participation features

[

Refer:

Basis for Conclusions paragraphs BC82–BC86

]

investment contract with discretionary participation features

does not include a transfer of significant

insurance risk

. Consequently, the requirements in IFRS 17 for

insurance contracts

are modified for investment contracts with discretionary participation features as follows:

(a)

the date of initial recognition (see

paragraphs 25

and

) is the date the entity becomes party to the contract.

(b)

the contract boundary (see

paragraph 34

) is modified so that cash flows are within the contract boundary if they result from a substantive obligation of the entity to deliver cash at a present or future date. The entity has no substantive obligation to deliver cash if it has the practical ability to set a price for the promise to deliver the cash that fully reflects the amount of cash promised and related risks.

(c)

the allocation of the

contractual service margin

(see

paragraphs 44(e)

and

45(e)

) is modified so that the entity shall recognise the contractual service margin over the duration of the

group of contracts

in a systematic way that reflects the transfer of investment services under the contract.

Modification and derecognition

[

Refer:

Basis for Conclusions paragraphs BC316–BC322

]

Modification of an insurance contract

If the terms of an

insurance contrac

t are modified, for example by agreement between the parties to the contract or by a change in regulation, an entity shall derecognise the original contract and recognise the modified contract as a new contract, applying IFRS 17 or other applicable Standards if, and only if, any of the conditions in (a)–(c) are satisfied. The exercise of a right included in the terms of a contract is not a modification. The conditions are that:

(a)

if the modified terms had been included at contract inception:

(i)

the modified contract would have been excluded from the scope of IFRS 17, applying

paragraphs 3–8A

;

(ii)

an entity would have separated different components from the host insurance contract applying

paragraphs 10–13

, resulting in a different insurance contract to which IFRS 17 would have applied;

(iii)

the modified contract would have had a substantially different contract boundary applying

paragraph 34

; or

(iv)

the modified contract would have been included in a different

group of contracts

applying

paragraphs 14–24

(b)

the original contract met the definition of an

insurance contract with direct participation features

, but the modified contract no longer meets that definition, or vice versa; or

(c)

the entity applied the premium allocation approach in

paragraphs 53–59

paragraphs 69–70

to the original contract, but the modifications mean that the contract no longer meets the eligibility criteria for that approach in

paragraph 53

paragraph 69

If a contract modification meets none of the conditions in

paragraph 72

, the entity shall treat changes in cash flows caused by the modification as changes in estimates of

fulfilment cash flows

by applying

paragraphs 40–52

[

Refer:

Basis for Conclusions paragraph BC320

]

Derecognition

An entity shall derecognise an

insurance contract

when, and only when:

(a)

it is extinguished, ie when the obligation specified in the insurance contract expires or is discharged or cancelled;

[

Refer:

Basis for Conclusions paragraphs BC321 and BC322

]

(b)

any of the conditions in

paragraph 72

are met.

When an

insurance contract

is extinguished, the entity is no longer at risk and is therefore no longer required to transfer any economic resources to satisfy the insurance contract. For example, when an entity buys reinsurance, it shall derecognise the

underlying insurance contract(s)

when, and only when, the underlying insurance contract(s) is or are extinguished.

[

Refer:

Basis for Conclusions paragraph BC306

]

An entity derecognises an

insurance contract

from within a

group of contracts

by applying the following requirements in IFRS 17:

(a)

the

fulfilment cash flows

allocated to the group are adjusted to eliminate the present value of the future cash flows and

risk adjustment for non-financial risk

relating to the rights and obligations that have been derecognised from the group, applying

paragraphs 40(a)(i)

and

40(b)

;

(b)

the

contractual service margin

of the group is adjusted for the change in fulfilment cash flows described in (a), to the extent required by

paragraphs 44(c)

and

45(c)

, unless

paragraph 77

applies; and

(c)

the number of coverage units for expected remaining insurance contract services is adjusted to reflect the coverage units derecognised from the group, and the amount of the contractual service margin recognised in profit or loss in the period is based on that adjusted number applying

paragraph B119

When an entity derecognises an

insurance contract

because it transfers the contract to a third party or derecognises an insurance contract and recognises a new contract applying

paragraph 72

, the entity shall instead of applying

paragraph 76(b)

[

Refer:

Basis for Conclusions paragraph BC319

]

(a)

adjust the

contractual service margin

of the group from which the contract has been derecognised, to the extent required by

paragraphs 44(c)

and

45(c)

, for the difference between (i) and either (ii) for contracts transferred to a third party or (iii) for contracts derecognised applying

paragraph 72

(i)

the change in the carrying amount of the

group of insurance contracts

resulting from the derecognition of the contract, applying

paragraph 76(a)

(ii)

the premium charged by the third party.

(iii)

the premium the entity would have charged had it entered into a contract with equivalent terms as the new contract at the date of the contract modification, less any additional premium charged for the modification.

(b)

measure the new contract recognised applying

paragraph 72

assuming that the entity received the premium described in (a)(iii) at the date of the modification.

Presentation in the statement of financial position

[

Refer:

Basis for Conclusions paragraphs BC328–BC330D

and

BC345

]

An entity shall present separately in the statement of financial position the carrying amount of portfolios of:

(a)

insurance contracts

issued that are assets;

(b)

insurance contracts issued that are liabilities;

(c)

reinsurance contracts

held that are assets; and

(d)

reinsurance contracts held that are liabilities.

An entity shall include any assets for

insurance acquisition cash flows

recognised applying

paragraph 28B

in the carrying amount of the related

portfolios of insurance contracts

issued, and any assets or liabilities for cash flows related to portfolios of reinsurance contracts held (see

paragraph 65(b)

) in the carrying amount of the portfolios of

reinsurance contracts

held.

[

Refer:

Basis for Conclusions paragraphs BC175–BC180

]

Recognition and presentation in the statement(s) of financial performance (

paragraphs B120–B136

)

[

Refer:

Basis for Conclusions paragraphs BC27–BC49

and

BC330–BC346

Illustrative Examples, Example 3

]

Applying

paragraphs 41 and 42

, an entity shall disaggregate the amounts recognised in the statement(s) of profit or loss and other comprehensive income (hereafter referred to as the statement(s) of financial performance) into:

(a)

an insurance service result (

paragraphs 83–86

), comprising insurance revenue and insurance service expenses; and

(b)

insurance finance income or expenses (

paragraphs 87–92

[

Refer:

Basis for Conclusions paragraph BC41

]

An entity is not required to disaggregate the change in the

risk adjustment for non-financial risk

between the insurance service result and insurance finance income or expenses. If an entity does not make such a disaggregation, it shall include the entire change in the risk adjustment for non-financial risk as part of the insurance service result.

[

Refer:

Illustrative Examples, Example 2 paragraph IE17

and

Example 6 paragraph IE62

]

An entity shall present income or expenses from

reinsurance contracts

held separately from the expenses or income from

insurance contracts

issued.

[

Refer:

Basis for Conclusions paragraph BC346

]

Insurance service result

[

Refer:

Basis for Conclusions paragraphs BC27–BC37

and

BC331–BC339

]

An entity shall present in profit or loss insurance revenue arising from the

groups of insurance contracts

issued. Insurance revenue shall depict the provision of services arising from the group of insurance contracts at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those services.

Paragraphs B120–B127

specify how an entity measures insurance revenue.

[

Refer:

Basis for Conclusions paragraphs BC27–BC37

and

BC61

]

An entity shall present in profit or loss insurance service expenses arising from a

group of insurance contracts

issued, comprising incurred claims (excluding repayments of

investment components

), other incurred insurance service expenses and other amounts as described in

paragraph 103(b)

[

Refer:

Basis for Conclusions paragraphs BC343 and BC344

Illustrative Examples,

Examples 3

and

]

Insurance revenue and insurance service expenses presented in profit or loss shall exclude any

investment components

. An entity shall not present premium information in profit or loss if that information is inconsistent with

paragraph 83

[

Refer:

Basis for Conclusions paragraphs BC33–BC34A

and

BC357

Illustrative Examples, Example 3A paragraph IE33

]

An entity may present the income or expenses from a group of

reinsurance contracts

held (see

paragraphs 60–70A

), other than insurance finance income or expenses, as a single amount; or the entity may present separately the amounts recovered from the reinsurer and an allocation of the premiums paid that together give a net amount equal to that single amount. If an entity presents separately the amounts recovered from the reinsurer and an allocation of the premiums paid, it shall:

(a)

treat reinsurance cash flows that are contingent on claims on the underlying contracts as part of the claims that are expected to be reimbursed under the reinsurance contract held;

[

Refer:

Basis for Conclusions paragraph BC346(a)

]

(b)

treat amounts from the reinsurer that it expects to receive that are not contingent on claims of the underlying contracts (for example, some types of ceding commissions) as a reduction in the premiums to be paid to the reinsurer;

[

Refer:

Basis for Conclusions paragraph BC346(b)

]

(ba)

treat amounts recognised relating to recovery of losses applying

paragraphs 66(c)(i)‒(ii)

and

66A‒66B

as amounts recovered from the reinsurer;

[

Refer:

Illustrative Examples, Example 12C paragraph IE138O]

and

(c)

not present the allocation of premiums paid as a reduction in revenue.

Insurance finance income or expenses (see

paragraphs B128–B136

)

[

Refer:

Basis for Conclusions paragraphs BC38–BC49

and

BC340–BC342C

]

Insurance finance income or expenses comprises the change in the carrying amount of the

group of insurance contracts

arising from:

[

Refer:

Basis for Conclusions paragraphs BC38–BC40

Illustrative Examples, Example 6 paragraph IE71

]

(a)

the effect of the time value of money and changes in the time value of money; and

(b)

the effect of

financial risk

and changes in financial risk; but

(c)

excluding any such changes for groups of

insurance contracts with direct participation features

that would adjust the

contractual service margin

but do not do so when applying

paragraphs 45(b)(ii)

45(b)(iii)

45(c)(ii)

45(c)(iii)

. These are included in insurance service expenses.

[

Refer:

Basis for Conclusions paragraph BC247

]

87A

An entity shall apply:

(a)

paragraph B117A

to insurance finance income or expenses arising from the application of

paragraph B115

(risk mitigation); and

(b)

paragraphs 88

and

to all other insurance finance income or expenses.

[

Refer:

Basis for Conclusions paragraphs BC256G–BC256H]

In applying

paragraph 87A(b)

, unless

paragraph 89

applies, an entity shall make an accounting policy choice between:

(a)

including insurance finance income or expenses for the period in profit or loss; or

(b)

disaggregating insurance finance income or expenses for the period to include in profit or loss an amount determined by a systematic allocation of the expected total insurance finance income or expenses over the duration of the

group of contracts

, applying

paragraphs B130–B133

[

Refer:

Illustrative Examples, Example 15

]

[

Refer:

Basis for Conclusions paragraphs BC46–BC49

and

BC62

]

In applying

paragraph 87A(b)

, for

insurance contracts with direct participation features

, for which the entity holds the

underlying items

, an entity shall make an accounting policy choice between:

(a)

including insurance finance income or expenses for the period in profit or loss; or

(b)

disaggregating insurance finance income or expenses for the period to include in profit or loss an amount that eliminates accounting mismatches with income or expenses included in profit or loss on the underlying items held, applying

paragraphs B134–B136

[

Refer:

Illustrative Examples, Example 16

]

If an entity chooses the accounting policy set out in

paragraph 88(b)

or in

paragraph 89(b)

, it shall include in other comprehensive income the difference between the insurance finance income or expenses measured on the basis set out in those paragraphs and the total insurance finance income or expenses for the period.

If an entity transfers a

group of insurance contracts

or derecognises an

insurance contract

applying

paragraph 77

(a)

it shall reclassify to profit or loss as a reclassification adjustment (see

Presentation and Disclosure in Financial Statements

) any remaining amounts for the group (or contract) that were previously recognised in other comprehensive income because the entity chose the accounting policy set out in

paragraph 88(b)

(b)

it shall not reclassify to profit or loss as a reclassification adjustment (see

) any remaining amounts for the group (or contract) that were previously recognised in other comprehensive income because the entity chose the accounting policy set out in

paragraph 89(b)

[

Refer:

Basis for Conclusions paragraph BC49

]

Paragraph 30

requires an entity to treat an

insurance contract

as a monetary item under

for the purpose of translating foreign exchange items into the entity’s functional currency. An entity includes exchange differences on changes in the carrying amount of

groups of insurance contracts

in the statement of profit or loss, unless they relate to changes in the carrying amount of groups of insurance contracts included in other comprehensive income applying

paragraph 90

, in which case they shall be included in other comprehensive income.

Disclosure

[

Refer:

Basis for Conclusions paragraphs BC347–BC366C

]

[

Link to

Basis for Conclusions paragraphs BC367–BC371

for disclosures that the Board considered but did not include in IFRS 17]

The objective of the disclosure requirements is for an entity to disclose information in the notes that, together with the information provided in the statement of financial position, statement(s) of financial performance and statement of cash flows, gives a basis for users of financial statements to assess the effect that contracts within the scope of IFRS 17 have on the entity’s financial position, financial performance and cash flows. To achieve that objective, an entity shall disclose qualitative and quantitative information about:

(a)

the amounts recognised in its financial statements for contracts within the scope of IFRS 17 (see

paragraphs 97–116

);

(b)

the significant judgements, and changes in those judgements, made when applying IFRS 17 (see

paragraphs 117–120

); and

(c)

the nature and extent of the risks from contracts within the scope of IFRS 17 (see

paragraphs 121–132

[

Refer:

Basis for Conclusions paragraph BC347

]

[

Link to

Basis for Conclusions paragraph BC348

for disclosure requirements brought forward from

IFRS 4

]

An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. If the disclosures provided, applying

paragraphs 97–132

, are not enough to meet the objective in

paragraph 93

, an entity shall disclose additional information necessary to meet that objective.

[

Refer:

Basis for Conclusions paragraph BC347

]

An entity shall aggregate or disaggregate information so that useful information is not obscured either by the inclusion of a large amount of insignificant detail or by the aggregation of items that have different characteristics.

[

Refer:

Basis for Conclusions paragraph BC347

]

Paragraphs 41–43

set out requirements relating to aggregation and disaggregation of information. Examples of characteristics that might be appropriate as a basis to disaggregate information disclosed about

insurance contracts

are:

(a)

type of contract (for example, major product lines);

(b)

geographical area (for example, country or region); or

(c)

reportable segment, as defined in

IFRS 8

Operating Segments

Explanation of recognised amounts

[

Refer:

Basis for Conclusions paragraphs BC349–BC363

and BC366A–BC366C]

Of the disclosures required by

paragraphs 98–109A

, only those in

paragraphs 98–100

102–103

105‒105B

and

109A

apply to contracts to which the premium allocation approach has been applied. If an entity uses the premium allocation approach, it shall also disclose:

(a)

which of the criteria in

paragraphs 53

and

it has satisfied;

(b)

whether it makes an adjustment for the time value of money and the effect of

financial risk

applying

paragraphs 56

57(b)

and

59(b)

; and

(c)

the method it has chosen to recognise

insurance acquisition cash flows

applying

paragraph 59(a)

An entity shall disclose reconciliations that show how the net carrying amounts of contracts within the scope of IFRS 17 changed during the period because of cash flows and income and expenses recognised in the statement(s) of financial performance. Separate reconciliations shall be disclosed for

insurance contracts

issued and

reinsurance contracts

held. An entity shall adapt the requirements of

paragraphs 100–109

to reflect the features of reinsurance contracts held that differ from insurance contracts issued; for example, the generation of expenses or reduction in expenses rather than revenue.

[

Refer:

Illustrative Examples, Example 12C paragraph IE138N]

An entity shall provide enough information in the reconciliations to enable users of financial statements to identify changes from cash flows and amounts that are recognised in the statement(s) of financial performance. To comply with this requirement, an entity shall:

(a)

disclose, in a table, the reconciliations set out in

paragraphs 100–105B

; and

(b)

for each reconciliation, present the net carrying amounts at the beginning and at the end of the period, disaggregated into a total for portfolios of contracts that are assets and a total for portfolios of contracts that are liabilities, that equal the amounts presented in the statement of financial position applying

paragraph 78

100

An entity shall disclose reconciliations from the opening to the closing balances separately for each of:

(a)

the net liabilities (or assets) for the remaining coverage component, excluding any loss component.

(b)

any loss component (see

paragraphs 47–52

and

57–58

(c)

the liabilities for incurred claims. For

insurance contracts

to which the premium allocation approach described in

paragraphs 53–59

69–70A

has been applied, an entity shall disclose separate reconciliations for:

(i)

the estimates of the present value of the future cash flows; and

(ii)

the

risk adjustment for non-financial risk

[

Refer:

Basis for Conclusions paragraphs BC350–BC353

Illustrative Examples, Examples 3

and

]

101

For

insurance contracts

other than those to which the premium allocation approach described in

paragraphs 53–59

69–70A

has been applied, an entity shall also disclose reconciliations from the opening to the closing balances separately for each of:

(a)

the estimates of the present value of the future cash flows;

(b)

the

risk adjustment for non-financial risk

; and

(c)

the

contractual service margin

[

Refer:

Basis for Conclusions paragraphs BC354 and BC355

Illustrative Examples, Example 2

and

]

102

The objective of the reconciliations in

paragraphs 100–101

is to provide different types of information about the insurance service result.

[

Refer:

Basis for Conclusions paragraph BC356

]

103

An entity shall separately disclose in the reconciliations required in

paragraph 100

each of the following amounts related to services, if applicable:

(a)

insurance revenue.

(b)

insurance service expenses, showing separately:

(i)

incurred claims (excluding

investment components

) and other incurred insurance service expenses;

(ii)

amortisation of

insurance acquisition cash flows

;

(iii)

changes that relate to past service, ie changes in

fulfilment cash flows

relating to the

liability for incurred claims

; and

(iv)

changes that relate to future service, ie losses on onerous groups of contracts and reversals of such losses.

(c)

investment components excluded from insurance revenue and insurance service expenses (combined with refunds of premiums unless refunds of premiums are disclosed as part of the cash flows in the period described in

paragraph 105(a)(i)

)

[

Refer:

Basis for Conclusions paragraph BC366C(a)]

104

An entity shall separately disclose in the reconciliations required in

paragraph 101

each of the following amounts related to services, if applicable:

(a)

changes that relate to future service, applying

paragraphs B96–B118

, showing separately:

(i)

changes in estimates that adjust the

contractual service margin

;

(ii)

changes in estimates that do not adjust the contractual service margin, ie losses on groups of onerous contracts and reversals of such losses; and

(iii)

the effects of contracts initially recognised in the period.

(b)

changes that relate to current service, ie:

(i)

the amount of the contractual service margin recognised in profit or loss to reflect the transfer of services;

(ii)

the change in the

risk adjustment for non-financial risk

that does not relate to future service or past service; and

(iii)

experience adjustments

(see

paragraphs B97(c)

and

B113(a)

), excluding amounts relating to the risk adjustment for non-financial risk included in (ii).

[

Refer:

Basis for Conclusions paragraph BC366C(b)]

(c)

changes that relate to past service, ie changes in

fulfilment cash flows

relating to incurred claims (see

paragraphs B97(b)

and

B113(a)

105

To complete the reconciliations in

paragraphs 100–101

, an entity shall also disclose separately each of the following amounts not related to services provided in the period, if applicable:

(a)

cash flows in the period, including:

(i)

premiums received for

insurance contracts

issued (or paid for

reinsurance contracts

held);

(ii)

insurance acquisition cash flows

; and

(iii)

incurred claims paid and other insurance service expenses paid for insurance contracts issued (or recovered under reinsurance contracts held), excluding insurance acquisition cash flows.

(b)

the effect of changes in the risk of non-performance by the issuer of reinsurance contracts held;

(c)

insurance finance income or expenses; and

(d)

any additional line items that may be necessary to understand the change in the net carrying amount of the insurance contracts.

105A

An entity shall disclose a reconciliation from the opening to the closing balance of assets for insurance acquisition cash flows recognised applying

paragraph 28B

. An entity shall aggregate information for the reconciliation at a level that is consistent with that for the reconciliation of insurance contracts, applying

paragraph 98

[

Refer:

Basis for Conclusions paragraph BC366A]

105B

An entity shall separately disclose in the reconciliation required by

paragraph 105A

any impairment losses and reversals of impairment losses recognised applying

paragraph 28E–28F

[

Refer:

Basis for Conclusions paragraph BC366A]

106

For

insurance contracts

issued other than those to which the premium allocation approach described in

paragraphs 53–59

has been applied, an entity shall disclose an analysis of the insurance revenue recognised in the period comprising:

(a)

the amounts relating to the changes in the

liability for remaining coverage

as specified in

paragraph B124

, separately disclosing:

(i)

the insurance service expenses incurred during the period as specified in

paragraph B124(a)

;

(ii)

the change in the

risk adjustment for non-financial risk

, as specified in

paragraph B124(b)

;

(iii)

the amount of the

contractual service margin

recognised in profit or loss because of the transfer of insurance contract services in the period, as specified in

paragraph B124(c)

; and

(iv)

other amounts, if any, for example, experience adjustments for premium receipts other than those that relate to future service as specified in

paragraph B124(d)

(b)

the allocation of the portion of the premiums that relate to the recovery of

insurance acquisition cash flows

(see

paragraph B125

[

Refer:

Illustrative Examples, Example 7 paragraph IE80

]

107

For

insurance contracts

other than those to which the premium allocation approach described in

paragraphs 53–59

69–70A

has been applied, an entity shall disclose the effect on the statement of financial position separately for insurance contracts issued and

reinsurance contracts

held that are initially recognised in the period, showing their effect at initial recognition on:

(a)

the estimates of the present value of future cash outflows, showing separately the amount of the

insurance acquisition cash flows

;

(b)

the estimates of the present value of future cash inflows;

(c)

the

risk adjustment for non-financial risk

; and

(d)

the

contractual service margin

[

Refer:

Basis for Conclusions paragraphs BC358–BC361

]

108

In the disclosures required by

paragraph 107

, an entity shall separately disclose amounts resulting from:

(a)

contracts acquired from other entities in transfers of

insurance contracts

or business combinations; and

(b)

groups of contracts that are onerous.

[

Refer:

Basis for Conclusions paragraph BC362

]

109

For

insurance contracts

other than those to which the premium allocation approach described in

paragraphs 53–59

69–70A

has been applied, an entity shall disclose when it expects to recognise the

contractual service margin

remaining at the end of the reporting period in profit or loss quantitatively, in appropriate time bands. Such information shall be provided separately for insurance contracts issued and

reinsurance contracts

held.

[

Refer:

Basis for Conclusions paragraph BC363

and BC366B]

109A

An entity shall disclose quantitatively, in appropriate time bands, when it expects to derecognise an asset for insurance acquisition cash flows applying

paragraph 28C

[

Refer:

Basis for Conclusions paragraph BC366A]

Insurance finance income or expenses

[

Refer:

Basis for Conclusions paragraphs BC364–BC366

]

110

An entity shall disclose and explain the total amount of insurance finance income or expenses in the reporting period. In particular, an entity shall explain the relationship between insurance finance income or expenses and the investment return on its assets, to enable users of its financial statements to evaluate the sources of finance income or expenses recognised in profit or loss and other comprehensive income.

111

For

contracts with direct participation features

, the entity shall describe the composition of the

underlying items

and disclose their fair value.

112

For

contracts with direct participation features

, if an entity chooses not to adjust the

contractual service margin

for some changes in the

fulfilment cash flows

, applying

paragraph B115

, it shall disclose the effect of that choice on the adjustment to the contractual service margin in the current period.

113

For

contracts with direct participation features

, if an entity changes the basis of disaggregation of insurance finance income or expenses between profit or loss and other comprehensive income, applying

paragraph B135

, it shall disclose, in the period when the change in approach occurred:

(a)

the reason why the entity was required to change the basis of disaggregation;

(b)

the amount of any adjustment for each financial statement line item affected; and

(c)

the carrying amount of the

group of insurance contracts

to which the change applied at the date of the change.

Transition amounts

[

Refer:

Basis for Conclusions paragraph BC399

]

114

An entity shall provide disclosures that enable users of financial statements to identify the effect of

groups of insurance contracts

measured at the transition date applying the modified retrospective approach (see

paragraphs C6–C19A

) or the fair value approach (see

paragraphs C20–C24B

) on the

contractual service margin

and insurance revenue in subsequent periods. Hence an entity shall disclose the reconciliation of the contractual service margin applying

paragraph 101(c)

, and the amount of insurance revenue applying

paragraph 103(a)

, separately for:

(a)

insurance contract

s that existed at the transition date to which the entity has applied the modified retrospective approach;

(b)

insurance contracts that existed at the transition date to which the entity has applied the fair value approach; and

(c)

all other insurance contracts.

115

For all periods in which disclosures are made applying

paragraphs 114(a)

114(b)

, to enable users of financial statements to understand the nature and significance of the methods used and judgements applied in determining the transition amounts, an entity shall explain how it determined the measurement of

insurance contracts

at the transition date.

116

An entity that chooses to disaggregate insurance finance income or expenses between profit or loss and other comprehensive income applies

paragraphs C18(b)

C19(b)

C24(b)

and

C24(c)

to determine the cumulative difference between the insurance finance income or expenses that would have been recognised in profit or loss and the total insurance finance income or expenses at the transition date for the

groups of insurance contracts

to which the disaggregation applies. For all periods in which amounts determined applying these paragraphs exist, the entity shall disclose a reconciliation from the opening to the closing balance of the cumulative amounts included in other comprehensive income for financial assets measured at fair value through other comprehensive income related to the groups of insurance contracts. The reconciliation shall include, for example, gains or losses recognised in other comprehensive income in the period and gains or losses previously recognised in other comprehensive income in previous periods reclassified in the period to profit or loss.

Significant judgements in applying IFRS 17

117

An entity shall disclose the significant judgements and changes in judgements made in applying IFRS 17. Specifically, an entity shall disclose the inputs, assumptions and estimation techniques used, including:

(a)

the methods used to measure

insurance contracts

within the scope of IFRS 17 and the processes for estimating the inputs to those methods. Unless impracticable, an entity shall also provide quantitative information about those inputs.

(b)

any changes in the methods and processes for estimating inputs used to measure contracts, the reason for each change, and the type of contracts affected.

(c)

to the extent not covered in (a), the approach used:

(i)

to distinguish changes in estimates of future cash flows arising from the exercise of discretion from other changes in estimates of future cash flows for contracts without direct participation features (see

paragraph B98

);

(ii)

to determine the

risk adjustment for non-financial risk

, including whether changes in the risk adjustment for non-financial risk are disaggregated into an insurance service component and an insurance finance component or are presented in full in the insurance service result;

(iii)

to determine discount rates;

(iv)

to determine

investment components

; and

(v)

to determine the relative weighting of the benefits provided by insurance coverage and investment-return service or by insurance coverage and investment-related service (see

paragraphs B119–B119B

[

Refer:

Basis for Conclusions paragraph BC366B]

118

If, applying

paragraph 88(b)

paragraph 89(b)

, an entity chooses to disaggregate insurance finance income or expenses into amounts presented in profit or loss and amounts presented in other comprehensive income, the entity shall disclose an explanation of the methods used to determine the insurance finance income or expenses recognised in profit or loss.

119

An entity shall disclose the confidence level used to determine the

risk adjustment for non-financial risk

. If the entity uses a technique other than the confidence level technique for determining the risk adjustment for non-financial risk, it shall disclose the technique used and the confidence level corresponding to the results of that technique.

[

Refer:

Basis for Conclusions paragraphs BC215–BC217

]

120

An entity shall disclose the yield curve (or range of yield curves) used to discount cash flows that do not vary based on the returns on

underlying items

, applying

paragraph 36

. When an entity provides this disclosure in aggregate for a number of

groups of insurance contracts

, it shall provide such disclosures in the form of weighted averages, or relatively narrow ranges.

[

Refer:

Basis for Conclusions paragraph BC198

]

Nature and extent of risks that arise from contracts within the scope of IFRS 17

121

An entity shall disclose information that enables users of its financial statements to evaluate the nature, amount, timing and uncertainty of future cash flows that arise from contracts within the scope of IFRS 17.

Paragraphs 122–132

contain requirements for disclosures that would normally be necessary to meet this requirement.

122

These disclosures focus on the insurance and

financial risks

that arise from

insurance contracts

and how they have been managed. Financial risks typically include, but are not limited to, credit risk, liquidity risk and market risk.

123

If the information disclosed about an entity’s exposure to risk at the end of the reporting period is not representative of its exposure to risk during the period, the entity shall disclose that fact, the reason why the period-end exposure is not representative, and further information that is representative of its risk exposure during the period.

124

For each type of risk arising from contracts within the scope of IFRS 17, an entity shall disclose:

(a)

the exposures to risks and how they arise;

(b)

the entity’s objectives, policies and processes for managing the risks and the methods used to measure the risks; and

(c)

any changes in (a) or (b) from the previous period.

125

For each type of risk arising from contracts within the scope of IFRS 17, an entity shall disclose:

(a)

summary quantitative information about its exposure to that risk at the end of the reporting period. This disclosure shall be based on the information provided internally to the entity’s key management personnel.

(b)

the disclosures required by

paragraphs 127–132

, to the extent not provided applying (a) of this paragraph.

126

An entity shall disclose information about the effect of the regulatory frameworks in which it operates; for example, minimum capital requirements or required interest-rate guarantees. If an entity applies

paragraph 20

in determining the

groups of insurance contracts

to which it applies the recognition and measurement requirements of IFRS 17, it shall disclose that fact.

All types of risk—concentrations of risk

127

An entity shall disclose information about concentrations of risk arising from contracts within the scope of IFRS 17, including a description of how the entity determines the concentrations, and a description of the shared characteristic that identifies each concentration (for example, the type of

insured event

, industry, geographical area, or currency). Concentrations of

financial risk

might arise, for example, from interest-rate guarantees that come into effect at the same level for a large number of contracts. Concentrations of financial risk might also arise from concentrations of non-financial risk; for example, if an entity provides product liability protection to pharmaceutical companies and also holds investments in those companies.

Insurance and market risks—sensitivity analysis

128

An entity shall disclose information about sensitivities to changes in risk variables arising from contracts within the scope of IFRS 17. To comply with this requirement, an entity shall disclose:

(a)

a sensitivity analysis that shows how profit or loss and equity would have been affected by changes in risk variables that were reasonably possible at the end of the reporting period:

(i)

for

insurance risk

—showing the effect for

insurance contracts

issued, before and after risk mitigation by

reinsurance contracts

held; and

(ii)

for each type of market risk—in a way that explains the relationship between the sensitivities to changes in risk variables arising from insurance contracts and those arising from financial assets held by the entity.

(b)

the methods and assumptions used in preparing the sensitivity analysis; and

(c)

changes from the previous period in the methods and assumptions used in preparing the sensitivity analysis, and the reasons for such changes.

129

If an entity prepares a sensitivity analysis that shows how amounts different from those specified in

paragraph 128(a)

are affected by changes in risk variables and uses that sensitivity analysis to manage risks arising from contracts within the scope of IFRS 17, it may use that sensitivity analysis in place of the analysis specified in

paragraph 128(a)

. The entity shall also disclose:

(a)

an explanation of the method used in preparing such a sensitivity analysis and of the main parameters and assumptions underlying the information provided; and

(b)

an explanation of the objective of the method used and of any limitations that may result in the information provided.

Insurance risk—claims development

130

An entity shall disclose actual claims compared with previous estimates of the undiscounted amount of the claims (ie claims development). The disclosure about claims development shall start with the period when the earliest material claim(s) arose and for which there is still uncertainty about the amount and timing of the claims payments at the end of the reporting period; but the disclosure is not required to start more than 10 years before the end of the reporting period. The entity is not required to disclose information about the development of claims for which uncertainty about the amount and timing of the claims payments is typically resolved within one year. An entity shall reconcile the disclosure about claims development with the aggregate carrying amount of the

groups of insurance contracts

, which the entity discloses applying

paragraph 100(c)

[

Refer:

Basis for Conclusions paragraph BC401

]

Credit risk—other information

131

For credit risk that arises from contracts within the scope of IFRS 17, an entity shall disclose:

(a)

the amount that best represents its maximum exposure to credit risk at the end of the reporting period, separately for

insurance contracts

issued and

reinsurance contracts

held; and

(b)

information about the credit quality of reinsurance contracts held that are assets.

Liquidity risk—other information

132

For liquidity risk arising from contracts within the scope of IFRS 17, an entity shall disclose:

(a)

a description of how it manages the liquidity risk.

(b)

separate maturity analyses for

portfolios of insurance contracts

issued that are liabilities and portfolios of

reinsurance contracts

held that are liabilities that show, as a minimum, net cash flows of the portfolios for each of the first five years after the reporting date and in aggregate beyond the first five years. An entity is not required to include in these analyses liabilities for remaining coverage measured applying

paragraphs 55–59

and

paragraphs 69–70A

. The analyses may take the form of:

(i)

an analysis, by estimated timing, of the remaining contractual undiscounted net cash flows; or

(ii)

an analysis, by estimated timing, of the estimates of the present value of the future cash flows.

(c)

the amounts that are payable on demand, explaining the relationship between such amounts and the carrying amount of the related portfolios of contracts, if not disclosed applying (b) of this paragraph.

Appendices

Appendix A

Defined terms

This appendix is an integral part of IFRS 17

Insurance Contracts

contractual service margin

A component of the carrying amount of the asset or liability for a

group of insurance contracts

representing the unearned profit the entity will recognise as it provides

insurance contract services

under the

insurance contracts

in the group.

[

Refer:

Basis for Conclusions paragraphs BC218–BC220

]

coverage period

The period during which the entity provides

insurance contract services

. This period includes the

insurance contract services

that relate to all premiums within the boundary of the

insurance contract

experience adjustment

A difference between:

(a)

for premium receipts (and any related cash flows such as

insurance acquisition cash flows

and insurance premium taxes)—the estimate at the beginning of the period of the amounts expected in the period and the actual cash flows in the period; or

(b)

for insurance service expenses (excluding insurance acquisition expenses)—the estimate at the beginning of the period of the amounts expected to be incurred in the period and the actual amounts incurred in the period.

financial risk

The risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, currency exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract.

[

Refer:

Basis for Conclusions paragraph BC39

]

fulfilment cash flows

An explicit, unbiased and probability-weighted estimate (ie expected value) of the present value of the future cash outflows minus the present value of the future cash inflows that will arise as the entity fulfils

insurance contracts

, including a

risk adjustment for non-financial risk

[

Refer:

Basis for Conclusions paragraphs BC19–BC20

]

group of insurance contracts

A set of

insurance contracts

resulting from the division of a

portfolio of insurance contracts

into, at a minimum, contracts issued within a period of no longer than one year and that, at initial recognition:

(a)

are onerous, if any;

(b)

have no significant possibility of becoming onerous subsequently, if any; or

(c)

do not fall into either (a) or (b), if any.

[

Refer:

Basis for Conclusions paragraphs BC51, BC52

and

BC115–BC139T

]

insurance acquisition cash flows

Cash flows arising from the costs of selling, underwriting and starting a

group of insurance contracts

(issued or expected to be issued) that are directly attributable to the

portfolio of insurance contracts

to which the group belongs. Such cash flows include cash flows that are not directly attributable to individual contracts or

groups of insurance contracts

within the portfolio.

[

Refer:

Basis for Conclusions paragraphs BC175–BC184K

]

insurance contract

A contract under which one party (the issuer) accepts significant

insurance risk

from another party (the

policyholder

) by agreeing to compensate the

policyholder

if a specified uncertain future event (the

insured event

) adversely affects the

policyholder

[

Refer:

paragraphs B2–B30

and

Basis for Conclusions paragraphs BC67–BC81

]

insurance contract services

The following services that an entity provides to a

policyholder

of an

insurance contract

(a)

coverage for an

insured event

(insurance coverage);

(b)

for

insurance contracts without direct participation features

, the generation of an investment return for the policyholder, if applicable (investment-return service); and

(c)

for

insurance contracts with direct participation features

, the management of underlying items on behalf of the

policyholder

(investment-related service).

[

Refer:

Basis for Conclusions paragraphs BC283A–BC283J]

insurance contract with direct participation features

insurance contract

for which, at inception:

(a)

the contractual terms specify that the

policyholder

participates in a share of a clearly identified pool of

underlying items

;

(b)

the entity expects to pay to the

policyholder

an amount equal to a substantial share of the fair value returns on the

underlying items

; and

(c)

the entity expects a substantial proportion of any change in the amounts to be paid to the

policyholder

to vary with the change in fair value of the

underlying items

[

Refer:

Basis for Conclusions paragraphs BC238–BC249D

]

insurance contract without direct participation features

insurance contract

that is not an

insurance contract with direct participation features

insurance risk

Risk, other than

financial risk

, transferred from the holder of a contract to the issuer.

[

Refer:

Basis for Conclusions paragraphs BC71–BC75

]

insured event

An uncertain future event covered by an

insurance contract

that creates

insurance risk

[

Refer:

Basis for Conclusions paragraphs BC71–BC75

]

investment component

The amounts that an

insurance contract

requires the entity to repay to a

policyholder

in all circumstances, regardless of whether an

insured event

occurs.

[

Refer:

Basis for Conclusions paragraphs BC34–BC34A

]

investment contract with discretionary participation features

A financial instrument that provides a particular investor with the contractual right to receive, as a supplement to an amount not subject to the discretion of the issuer, additional amounts:

(a)

that are expected to be a significant portion of the total contractual benefits;

(b)

the timing or amount of which are contractually at the discretion of the issuer; and

(c)

that are contractually based on:

(i)

the returns on a specified pool of contracts or a specified type of contract;

(ii)

realised and/or unrealised investment returns on a specified pool of assets held by the issuer; or

(iii)

the profit or loss of the entity or fund that issues the contract.

liability for incurred claims

An entity’s obligation to:

(a)

investigate and pay valid claims for

insured events

that have already occurred, including events that have occurred but for which claims have not been reported, and other incurred insurance expenses; and

(b)

pay amounts that are not included in (a) and that relate to:

(i)

insurance contract services

that have already been provided; or

(ii)

any

investment components

or other amounts that are not related to the provision of

insurance contract services

and that are not in the

liability for remaining coverage.

[

Refer:

Basis for Conclusions paragraph BC25

]

liability for remaining coverage

An entity’s obligation to:

(a)

investigate and pay valid claims under existing

insurance contracts

for

insured events

that have not yet occurred (ie the obligation that relates to the unexpired portion of the insurance coverage); and

(b)

pay amounts under existing

insurance contracts

that are not included in (a) and that relate to:

(i)

insurance contract services

not yet provided (ie the obligations that relate to future provision of

insurance contract services

); or

(ii)

any

investment components

or other amounts that are not related to the provision of

insurance contract services

and that have not been transferred to the

liability for incurred claims

[

Refer:

Basis for Conclusions paragraph BC25

]

policyholder

A party that has a right to compensation under an

insurance contract

if an

insured event

occurs.

portfolio of insurance contracts

Insurance contracts

subject to similar risks and managed together.

reinsurance contract

insurance contract

issued by one entity (the reinsurer) to compensate another entity for claims arising from one or more

insurance contracts

issued by that other entity (underlying contracts).

[

Refer:

Basis for Conclusions paragraph BC296

]

risk adjustment for non-financial risk

The compensation an entity requires for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk as the entity fulfils

insurance contracts

[

Refer:

Basis for Conclusions paragraphs BC208 and BC209

]

underlying items

Items that determine some of the amounts payable to a

policyholder

Underlying items

can comprise any items; for example, a reference portfolio of assets, the net assets of the entity, or a specified subset of the net assets of the entity.

Appendix B

Application guidance

This appendix is an integral part of IFRS 17

Insurance Contracts

This appendix provides guidance on the following:

(a)

definition of an

insurance contract

(see

paragraphs B2–B30

);

(b)

separation of components from an insurance contract (see

paragraphs B31–B35

);

(ba)

asset for insurance acquisition cash flows (see

paragraphs B35A–B35D

);

(c)

measurement (see

paragraphs B36–B119F

);

(d)

insurance revenue (see

paragraphs B120–B127

);

(e)

insurance finance income or expenses (see

paragraphs B128–B136

); and

(f)

interim financial statements (see

paragraph B137

Definition of an

insurance contract

(

Appendix A

)

[

Refer:

Basis for Conclusions paragraphs BC63–BC81

]

This section provides guidance on the definition of an

insurance contract

as specified in Appendix A. It addresses the following:

(a)

uncertain future event (see

paragraphs B3–B5

);

(b)

payments in kind (see

paragraph B6

);

(c)

the distinction between

insurance risk

and other risks (see

paragraphs B7–B16

);

(d)

significant insurance risk (see

paragraphs B17–B23

);

(e)

changes in the level of insurance risk (see

paragraphs B24–B25

); and

(f)

examples of insurance contracts (see

paragraphs B26–B30

Uncertain future event

[

Refer:

Basis for Conclusions paragraphs BC73 and BC74

]

Uncertainty (or risk) is the essence of an

insurance contract

. Accordingly, at least one of the following is uncertain at the inception of an insurance contract:

(a)

the probability of an

insured event

occurring;

(b)

when the insured event will occur; or

(c)

how much the entity will need to pay if the insured event occurs.

In some

insurance contracts

, the

insured event

is the discovery of a loss during the term of the contract, even if that loss arises from an event that occurred before the inception of the contract. In other insurance contracts, the insured event is an event that occurs during the term of the contract, even if the resulting loss is discovered after the end of the contract term.

Some

insurance contracts

cover events that have already occurred but the financial effect of which is still uncertain. An example is an insurance contract that provides insurance coverage against an adverse development of an event that has already occurred. In such contracts, the

insured event

is the determination of the ultimate cost of those claims.

Payments in kind

Some

insurance contracts

require or permit payments to be made in kind. In such cases, the entity provides goods or services to the

policyholder

to settle the entity’s obligation to compensate the policyholder for

insured events

. An example is when the entity replaces a stolen article instead of reimbursing the policyholder for the amount of its loss. Another example is when an entity uses its own hospitals and medical staff to provide medical services covered by the insurance contract. Such contracts are insurance contracts, even though the claims are settled in kind. Fixed-fee service contracts that meet the conditions specified in

paragraph 8

are also insurance contracts, but applying paragraph 8, an entity may choose to account for them applying either

Revenue from Contracts with Customers

[

Refer:

Basis for Conclusions paragraphs BC95–BC97

]

The distinction between

insurance risk

and other risks

[

Refer:

Basis for Conclusions paragraphs BC73–BC75

]

The definition of an

insurance contract

requires that one party accepts significant

insurance risk

from another party.

defines insurance risk as ‘risk, other than

financial risk

, transferred from the holder of a contract to the issuer’. A contract that exposes the issuer to financial risk without significant insurance risk is not an insurance contract.

The definition of

financial risk

in Appendix A refers to financial and non-financial variables. Examples of non-financial variables not specific to a party to the contract include an index of earthquake losses in a particular region or temperatures in a particular city. Financial risk excludes risk from non-financial variables that are specific to a party to the contract, such as the occurrence or non-occurrence of a fire that damages or destroys an asset of that party. Furthermore, the risk of changes in the fair value of a non-financial asset is not a financial risk if the fair value reflects changes in the market prices for such assets (ie a financial variable) and the condition of a specific non-financial asset held by a party to a contract (ie a non-financial variable). For example, if a guarantee of the residual value of a specific car in which the

policyholder

has an insurable interest exposes the guarantor to the risk of changes in the car’s physical condition, that risk is

insurance risk

, not financial risk.

Some contracts expose the issuer to

financial risk

in addition to significant

insurance risk

. For example, many life

insurance contracts

guarantee a minimum rate of return to

policyholders

, creating financial risk, and at the same time promise death benefits that may significantly exceed the policyholder’s account balance, creating insurance risk in the form of mortality risk. Such contracts are insurance contracts.

B10

Under some contracts, an

insured event

triggers the payment of an amount linked to a price index. Such contracts are

insurance contracts

, provided that the payment contingent on the insured event could be significant. For example, a life-contingent annuity linked to a cost-of-living index transfers

insurance risk

because the payment is triggered by an uncertain future event—the survival of the person who receives the annuity. The link to the price index is a derivative, but it also transfers insurance risk because the number of payments to which the index applies depends on the survival of the annuitant. If the resulting transfer of insurance risk is significant, the derivative meets the definition of an insurance contract, in which case it shall not be separated from the host contract (see

paragraph 11(a)

B11

Insurance risk

is the risk the entity accepts from the

policyholder

. This means the entity must accept, from the policyholder, a risk to which the policyholder was already exposed. Any new risk created by the contract for the entity or the policyholder is not insurance risk.

B12

The definition of an

insurance contract

refers to an adverse effect on the

policyholder

. This definition does not limit the payment by the entity to an amount equal to the financial effect of the adverse event. For example, the definition includes ‘new for old’ insurance coverage that pays the policyholder an amount that permits the replacement of a used and damaged asset with a new one. Similarly, the definition does not limit the payment under a life insurance contract to the financial loss suffered by the deceased’s dependants, nor does it exclude contracts that specify the payment of predetermined amounts to quantify the loss caused by death or an accident.

B13

Some contracts require a payment if a specified uncertain future event occurs, but do not require an adverse effect on the

policyholder

as a precondition for the payment. This type of contract is not an

insurance contract

even if the holder uses it to mitigate an underlying risk exposure. For example, if the holder uses a derivative to hedge an underlying financial or non-financial variable correlated with the cash flows from an asset of the entity, the derivative is not an insurance contract because the payment is not conditional on whether the holder is adversely affected by a reduction in the cash flows from the asset. The definition of an insurance contract refers to an uncertain future event for which an adverse effect on the policyholder is a contractual precondition for payment. A contractual precondition does not require the entity to investigate whether the event actually caused an adverse effect, but it does permit the entity to deny the payment if it is not satisfied that the event did cause an adverse effect.

B14

Lapse or persistency risk (the risk that the

policyholder

will cancel the contract earlier or later than the issuer had expected when pricing the contract) is not

insurance risk

because the resulting variability in the payment to the policyholder is not contingent on an uncertain future event that adversely affects the policyholder. Similarly, expense risk (ie the risk of unexpected increases in the administrative costs associated with the servicing of a contract, rather than in the costs associated with

insured events

) is not insurance risk because an unexpected increase in such expenses does not adversely affect the policyholder.

B15

Consequently, a contract that exposes the entity to lapse risk, persistency risk or expense risk is not an

insurance contract

unless it also exposes the entity to significant

insurance risk

. However, if the entity mitigates its risk by using a second contract to transfer part of the non-insurance risk to another party, the second contract exposes the other party to insurance risk.

B16

An entity can accept significant

insurance risk

from the

policyholder

only if the entity is separate from the policyholder. In the case of a mutual entity, the mutual entity accepts risk from each policyholder and pools that risk. Although policyholders bear that pooled risk collectively because they hold the residual interest in the entity, the mutual entity is a separate entity that has accepted the risk.

Significant

insurance risk

[

Refer:

Basis for Conclusions paragraphs BC76–BC80

]

B17

A contract is an

insurance contract

only if it transfers significant

insurance risk

Paragraphs B7–B16

discuss insurance risk.

Paragraphs B18–B23

discuss the assessment of whether the insurance risk is significant.

B18

Insurance risk

is significant if, and only if, an

insured event

could cause the issuer to pay additional amounts that are significant in any single scenario, excluding scenarios that have no commercial substance (ie no discernible effect on the economics of the transaction). If an insured event could mean significant additional amounts would be payable in any scenario that has commercial substance, the condition in the previous sentence can be met even if the insured event is extremely unlikely, or even if the expected (ie probability-weighted) present value of the contingent cash flows is a small proportion of the expected present value of the remaining cash flows from the

insurance contract

B19

In addition, a contract transfers significant

insurance risk

only if there is a scenario that has commercial substance in which the issuer has a possibility of a loss on a present value basis. However, even if a

reinsurance contract

does not expose the issuer to the possibility of a significant loss, that contract is deemed to transfer significant insurance risk if it transfers to the reinsurer substantially all the insurance risk relating to the reinsured portions of the underlying

insurance contracts

B20

The additional amounts described in

paragraph B18

are determined on a present-value basis. If an

insurance contract

requires payment when an event with uncertain timing occurs and if the payment is not adjusted for the time value of money, there may be scenarios in which the present value of the payment increases, even if its nominal value is fixed. An example is insurance that provides a fixed death benefit when the

policyholder

dies, with no expiry date for the cover (often referred to as whole-life insurance for a fixed amount). It is certain that the policyholder will die, but the date of death is uncertain. Payments may be made when an individual policyholder dies earlier than expected. Because those payments are not adjusted for the time value of money, significant

insurance risk

could exist even if there is no overall loss on the

portfolio of contracts

. Similarly, contractual terms that delay timely reimbursement to the policyholder can eliminate significant insurance risk. An entity shall use the discount rates required in

paragraph 36

to determine the present value of the additional amounts.

B21

The additional amounts described in

paragraph B18

refer to the present value of amounts that exceed those that would be payable if no

insured event

had occurred (excluding scenarios that lack commercial substance). Those additional amounts include claims handling and assessment costs, but exclude:

(a)

the loss of the ability to charge the

policyholder

for future service. For example, in an investment-linked life

insurance contract

, the death of the policyholder means that the entity can no longer perform investment management services and collect a fee for doing so. However, this economic loss for the entity does not result from

insurance risk

, just as a mutual fund manager does not take on insurance risk in relation to the possible death of a client. Consequently, the potential loss of future investment management fees is not relevant when assessing how much insurance risk is transferred by a contract.

(b)

a waiver, on death, of charges that would be made on cancellation or surrender. Because the contract brought those charges into existence, their waiver does not compensate the policyholder for a pre-existing risk. Consequently, they are not relevant when assessing how much insurance risk is transferred by a contract.

(c)

a payment conditional on an event that does not cause a significant loss to the holder of the contract. For example, consider a contract that requires the issuer to pay CU1 million

if an asset suffers physical damage that causes an insignificant economic loss of CU1 to the holder. In this contract, the holder transfers the insignificant risk of losing CU1 to the issuer. At the same time, the contract creates a non‑insurance risk that the issuer will need to pay CU999,999 if the specified event occurs. Because there is no scenario in which an insured event causes a significant loss to the holder of the contract, the issuer does not accept significant insurance risk from the holder and this contract is not an insurance contract.

(d)

possible reinsurance recoveries. The entity accounts for these separately.

B22

An entity shall assess the significance of

insurance risk

contract by contract. Consequently, the insurance risk can be significant even if there is minimal probability of significant losses for a

portfolio

group of contracts

B23

It follows from

paragraphs B18–B22

that, if a contract pays a death benefit that exceeds the amount payable on survival, the contract is an

insurance contract

unless the additional death benefit is not significant (judged by reference to the contract itself rather than to an entire

portfolio of contracts

). As noted in

paragraph B21(b)

, the waiver on death of cancellation or surrender charges is not included in this assessment if that waiver does not compensate the

policyholder

for a pre-existing risk. Similarly, an annuity contract that pays out regular sums for the rest of a policyholder’s life is an insurance contract, unless the aggregate life-contingent payments are insignificant.

Changes in the level of

insurance risk

B24

For some contracts, the transfer of

insurance risk

to the issuer occurs after a period of time. For example, consider a contract that provides a specified investment return and includes an option for the

policyholder

to use the proceeds of the investment on maturity to buy a life-contingent annuity at the same rates the entity charges other new annuitants at the time the policyholder exercises that option. Such a contract transfers insurance risk to the issuer only after the option is exercised, because the entity remains free to price the annuity on a basis that reflects the insurance risk that will be transferred to the entity at that time. Consequently, the cash flows that would occur on the exercise of the option fall outside the boundary of the contract, and before exercise there are no insurance cash flows within the boundary of the contract. However, if the contract specifies the annuity rates (or a basis other than market rates for setting the annuity rates), the contract transfers insurance risk to the issuer because the issuer is exposed to the risk that the annuity rates will be unfavourable to the issuer when the policyholder exercises the option. In that case, the cash flows that would occur when the option is exercised are within the boundary of the contract.

B25

A contract that meets the definition of an

insurance contract

remains an insurance contract until all rights and obligations are extinguished (ie discharged, cancelled or expired), unless the contract is derecognised applying

paragraphs 74–77

, because of a contract modification.

[

Refer:

Basis for Conclusions paragraph BC80

]

Examples of

insurance contracts

B26

The following are examples of contracts that are

insurance contracts

if the transfer of

insurance risk

is significant:

(a)

insurance against theft or damage.

(b)

insurance against product liability, professional liability, civil liability or legal expenses.

(c)

life insurance and prepaid funeral plans (although death is certain, it is uncertain when death will occur or, for some types of life insurance, whether death will occur within the period covered by the insurance).

(d)

life-contingent annuities and pensions, ie contracts that provide compensation for the uncertain future event—the survival of the annuitant or pensioner—to provide the annuitant or pensioner with a level of income that would otherwise be adversely affected by his or her survival. (Employers’ liabilities that arise from employee benefit plans and retirement benefit obligations reported by defined benefit retirement plans are outside the scope of IFRS 17, applying

paragraph 7(b)

(e)

insurance against disability and medical costs.

(f)

surety bonds, fidelity bonds, performance bonds and bid bonds, ie contracts that compensate the holder if another party fails to perform a contractual obligation; for example, an obligation to construct a building.

(g)

product warranties. Product warranties issued by another party for goods sold by a manufacturer, dealer or retailer are within the scope of IFRS 17. However, product warranties issued directly by a manufacturer, dealer or retailer are outside the scope of IFRS 17 applying

paragraph 7(a)

, and are instead within the scope of

IAS 37

Provisions, Contingent Liabilities and Contingent Assets

[

Refer:

Basis for Conclusions paragraphs BC89 and BC90

]

(h)

title insurance (insurance against the discovery of defects in the title to land or buildings that were not apparent when the insurance contract was issued). In this case, the

insured event

is the discovery of a defect in the title, not the defect itself.

(i)

travel insurance (compensation in cash or in kind to

policyholders

for losses suffered in advance of, or during, travel).

(j)

catastrophe bonds that provide for reduced payments of principal, interest or both, if a specified event adversely affects the issuer of the bond (unless the specified event does not create significant insurance risk; for example, if the event is a change in an interest rate or a foreign exchange rate).

(k)

insurance swaps and other contracts that require a payment depending on changes in climatic, geological or other physical variables that are specific to a party to the contract.

B27

The following are examples of items that are not

insurance contracts

(a)

investment contracts that have the legal form of an insurance contract but do not transfer significant

insurance risk

to the issuer. For example, life insurance contracts in which the entity bears no significant mortality or morbidity risk are not insurance contracts; such contracts are financial instruments or service contracts—see

paragraph B28

Investment contracts with discretionary participation features

do not meet the definition of an insurance contract; however, they are within the scope of IFRS 17 provided they are issued by an entity that also issues insurance contracts, applying

paragraph 3(c)

(b)

contracts that have the legal form of insurance, but return all significant insurance risk to the

policyholder

through non-cancellable and enforceable mechanisms that adjust future payments by the policyholder to the issuer as a direct result of insured losses. For example, some financial

reinsurance contracts

or some group contracts return all significant insurance risk to the policyholders; such contracts are normally financial instruments or service contracts (see

paragraph B28

(c)

self-insurance (ie retaining a risk that could have been covered by insurance). In such situations, there is no insurance contract because there is no agreement with another party. Thus, if an entity issues an insurance contract to its parent, subsidiary or fellow subsidiary, there is no insurance contract in the consolidated financial statements because there is no contract with another party. However, for the individual or separate financial statements of the issuer or holder, there is an insurance contract.

(d)

contracts (such as gambling contracts) that require a payment if a specified uncertain future event occurs, but do not require, as a contractual precondition for payment, the event to adversely affect the policyholder. However, this does not exclude from the definition of an insurance contract contracts that specify a predetermined payout to quantify the loss caused by a specified event such as a death or an accident (see

paragraph B12

(e)

derivatives that expose a party to

financial risk

but not insurance risk, because the derivatives require that party to make (or give them the right to receive) payment solely based on the changes in one or more of a specified interest rate, a financial instrument price, a commodity price, a foreign exchange rate, an index of prices or rates, a credit rating or a credit index or any other variable, provided that, in the case of a non-financial variable, the variable is not specific to a party to the contract.

(f)

credit-related guarantees that require payments even if the holder has not incurred a loss on the failure of the debtor to make payments when due; such contracts are accounted for applying

Financial Instruments

(see

paragraph B29

(g)

contracts that require a payment that depends on a climatic, geological or any other physical variable not specific to a party to the contract (commonly described as weather derivatives).

(h)

contracts that provide for reduced payments of principal, interest or both, that depend on a climatic, geological or any other physical variable, the effect of which is not specific to a party to the contract (commonly referred to as catastrophe bonds).

B28

An entity shall apply other applicable Standards, such as

and

, to the contracts described in

paragraph B27

B29

The credit-related guarantees and credit

insurance contracts

discussed in

paragraph B27(f)

can have various legal forms, such as that of a guarantee, some types of letters of credit, a credit default contract or an insurance contract. Those contracts are insurance contracts if they require the issuer to make specified payments to reimburse the holder for a loss that the holder incurs because a specified debtor fails to make payment when due to the

policyholder

applying the original or modified terms of a debt instrument. However, such insurance contracts are excluded from the scope of IFRS 17 unless the issuer has previously asserted explicitly that it regards the contracts as insurance contracts and has used accounting applicable to insurance contracts (see

paragraph 7(e)

[

Refer:

Basis for Conclusions paragraphs BC91–BC93

]

B30

Credit-related guarantees and credit

insurance contracts

that require payment, even if the

policyholder

has not incurred a loss on the failure of the debtor to make payments when due, are outside the scope of IFRS 17 because they do not transfer significant

insurance risk

. Such contracts include those that require payment:

(a)

regardless of whether the counterparty holds the underlying debt instrument; or

(b)

on a change in the credit rating or the credit index, rather than on the failure of a specified debtor to make payments when due.

[

Refer:

Basis for Conclusions paragraph BC94

]

Separating components from an

insurance contract

(

paragraphs 10–13

)

[

Refer:

Basis for Conclusions paragraphs BC98–BC103

Illustrative Examples, Examples 4 and 5

]

Investment components

(

paragraph 11(b)

)

[

Refer:

Basis for Conclusions paragraphs BC108 and BC109

]

B31

Paragraph 11(b)

requires an entity to separate a distinct

investment component

from the host

insurance contract

. An investment component is distinct if, and only if, both the following conditions are met:

(a)

the investment component and the insurance component are not highly interrelated.

(b)

a contract with equivalent terms is sold, or could be sold, separately in the same market or the same jurisdiction, either by entities that issue insurance contracts or by other parties. The entity shall take into account all information reasonably available in making this determination. The entity is not required to undertake an exhaustive search to identify whether an investment component is sold separately.

B32

investment component

and an insurance component are highly interrelated if, and only if:

(a)

the entity is unable to measure one component without considering the other. Thus, if the value of one component varies according to the value of the other, an entity shall apply IFRS 17 to account for the combined investment and insurance component; or

(b)

the

policyholder

is unable to benefit from one component unless the other is also present. Thus, if the lapse or maturity of one component in a contract causes the lapse or maturity of the other, the entity shall apply IFRS 17 to account for the combined investment component and insurance component.

Promises to transfer distinct goods or services other than insurance contract services (

paragraph 12

)

[

Refer:

Basis for Conclusions paragraphs BC110–BC113

]

B33

Paragraph 12

requires an entity to separate from an

insurance contract

a promise to transfer distinct goods or services other than insurance contract services to a

policyholder

. For the purpose of separation, an entity shall not consider activities that an entity must undertake to fulfil a contract unless the entity transfers a good or service other than insurance contract services to the policyholder as those activities occur. For example, an entity may need to perform various administrative tasks to set up a contract. The performance of those tasks does not transfer a service to the policyholder as the tasks are performed.

B34

A good or service other than an insurance contract service promised to a

policyholder

is distinct if the policyholder can benefit from the good or service either on its own or together with other resources readily available to the policyholder. Readily available resources are goods or services that are sold separately (by the entity or by another entity), or resources that the policyholder has already got (from the entity or from other transactions or events).

B35

A good or service other than an insurance contract service that is promised to the

policyholder

is not distinct if:

(a)

the cash flows and risks associated with the good or service are highly interrelated with the cash flows and risks associated with the insurance components in the contract; and

(b)

the entity provides a significant service in integrating the good or service with the insurance components.

Insurance acquisition cash flows (

paragraphs 28A‒28F

)

[

Refer:

Basis for Conclusions paragraphs BC175–BC184K]

B35A

To apply

paragraph 28A

, an entity shall use a systematic and rational method to allocate:

(a)

insurance acquisition cash flows directly attributable to a group of insurance contracts:

(i)

to that group; and

(ii)

to groups that will include insurance contracts that are expected to arise from renewals of the insurance contracts in that group.

(b)

insurance acquisition cash flows directly attributable to a portfolio of insurance contracts, other than those in (a), to groups of contracts in the portfolio.

[

Refer:

Basis for Conclusions paragraphs BC184A–BC184G]

B35B

At the end of each reporting period, an entity shall revise amounts allocated as specified in

paragraph B35A

to reflect any changes in assumptions that determine the inputs to the method of allocation used.

[

Refer:

Basis for Conclusions paragraph BC184G]

An entity shall not change amounts allocated to a group of insurance contracts after all contracts have been added to the group (see

paragraph B35C

B35C

An entity might add insurance contracts to a group of insurance contracts across more than one reporting period (see

paragraph 28

). In those circumstances, an entity shall derecognise the portion of an asset for insurance acquisition cash flows that relates to insurance contracts added to the group in that period and continue to recognise an asset for insurance acquisition cash flows to the extent that the asset relates to insurance contracts expected to be added to the group in a future reporting period.

B35D

To apply

paragraph 28E

(a)

an entity shall recognise an impairment loss in profit or loss and reduce the carrying amount of an asset for insurance acquisition cash flows so that the carrying amount of the asset does not exceed the expected net cash inflow for the related group of insurance contracts, determined applying

paragraph 32(a)

(b)

when an entity allocates insurance acquisition cash flows to groups of insurance contracts applying

paragraph B35A(a)(ii)

, the entity shall recognise an impairment loss in profit or loss and reduce the carrying amount of the related assets for insurance acquisition cash flows to the extent that:

(i)

the entity expects those insurance acquisition cash flows to exceed the net cash inflow for the expected renewals, determined applying paragraph 32(a); and

(ii)

the excess determined applying (b)(i) has not already been recognised as an impairment loss applying (a).

[

Refer:

Basis for Conclusions paragraphs BC184I–BC184K]

Measurement (

paragraphs 29–71

)

[

Refer:

Basis for Conclusions paragraphs BC18–BC26

and

BC146–BC315L

]

Estimates of future cash flows (

paragraphs 33–35

)

B36

This section addresses:

(a)

unbiased use of all reasonable and supportable information available without undue cost or effort (see

paragraphs B37–B41

);

(b)

market variables and non-market variables (see

paragraphs B42–B53

);

(c)

using current estimates (see

paragraphs B54–B60

); and

(d)

cash flows within the contract boundary (see

paragraphs B61–B71

Unbiased use of all reasonable and supportable information available without undue cost or effort (

paragraph 33(a)

)

[

Refer:

Basis for Conclusions paragraphs BC148–BC152

]

B37

The objective of estimating future cash flows is to determine the expected value, or probability-weighted mean, of the full range of possible outcomes, considering all reasonable and supportable information available at the reporting date without undue cost or effort. Reasonable and supportable information available at the reporting date without undue cost or effort includes information about past events and current conditions, and forecasts of future conditions (see

paragraph B41

). Information available from an entity’s own information systems is considered to be available without undue cost or effort.

B38

The starting point for an estimate of the cash flows is a range of scenarios that reflects the full range of possible outcomes. Each scenario specifies the amount and timing of the cash flows for a particular outcome, and the estimated probability of that outcome. The cash flows from each scenario are discounted and weighted by the estimated probability of that outcome to derive an expected present value. Consequently, the objective is not to develop a most likely outcome, or a more-likely-than-not outcome, for future cash flows.

B39

When considering the full range of possible outcomes, the objective is to incorporate all reasonable and supportable information available without undue cost or effort in an unbiased way, rather than to identify every possible scenario. In practice, developing explicit scenarios is unnecessary if the resulting estimate is consistent with the measurement objective of considering all reasonable and supportable information available without undue cost or effort when determining the mean. For example, if an entity estimates that the probability distribution of outcomes is broadly consistent with a probability distribution that can be described completely with a small number of parameters, it will be sufficient to estimate the smaller number of parameters. Similarly, in some cases, relatively simple modelling may give an answer within an acceptable range of precision, without the need for many detailed simulations. However, in some cases, the cash flows may be driven by complex underlying factors and may respond in a non-linear fashion to changes in economic conditions. This may happen if, for example, the cash flows reflect a series of interrelated options that are implicit or explicit. In such cases, more sophisticated stochastic modelling is likely to be necessary to satisfy the measurement objective.

B40

The scenarios developed shall include unbiased estimates of the probability of catastrophic losses under existing contracts. Those scenarios exclude possible claims under possible future contracts.

B41

An entity shall estimate the probabilities and amounts of future payments under existing contracts on the basis of information obtained including:

(a)

information about claims already reported by

policyholders

(b)

other information about the known or estimated characteristics of the

insurance contracts

(c)

historical data about the entity’s own experience, supplemented when necessary with historical data from other sources. Historical data is adjusted to reflect current conditions, for example, if:

(i)

the characteristics of the insured population differ (or will differ, for example, because of adverse selection) from those of the population that has been used as a basis for the historical data;

(ii)

there are indications that historical trends will not continue, that new trends will emerge or that economic, demographic and other changes may affect the cash flows that arise from the existing insurance contracts; or

(iii)

there have been changes in items such as underwriting procedures and claims management procedures that may affect the relevance of historical data to the insurance contracts.

(d)

current price information, if available, for

reinsurance contracts

and other financial instruments (if any) covering similar risks, such as catastrophe bonds and weather derivatives, and recent market prices for transfers of

insurance contracts

. This information shall be adjusted to reflect the differences between the cash flows that arise from those reinsurance contracts or other financial instruments, and the cash flows that would arise as the entity fulfils the underlying contracts with the policyholder.

Market variables and non-market variables

B42

IFRS 17 identifies two types of variables:

(a)

market variables—variables that can be observed in, or derived directly from, markets (for example, prices of publicly traded securities and interest rates); and

(b)

non-market variables—all other variables (for example, the frequency and severity of insurance claims and mortality).

B43

Market variables will generally give rise to

financial risk

(for example, observable interest rates) and non-market variables will generally give rise to non-financial risk (for example, mortality rates). However, this will not always be the case. For example, there may be assumptions that relate to financial risks for which variables cannot be observed in, or derived directly from, markets (for example, interest rates that cannot be observed in, or derived directly from, markets).

Market variables (

paragraph 33(b)

)

B44

Estimates of market variables shall be consistent with observable market prices at the measurement date. An entity shall maximise the use of observable inputs and shall not substitute its own estimates for observable market data except as described in

paragraph 79 of IFRS 13

Fair Value Measurement

. Consistent with

IFRS 13

, if variables need to be derived (for example, because no observable market variables exist) they shall be as consistent as possible with observable market variables.

[

Refer:

Basis for Conclusions paragraph BC153

]

B45

Market prices blend a range of views about possible future outcomes and also reflect the risk preferences of market participants. Consequently, they are not a single-point forecast of the future outcome. If the actual outcome differs from the previous market price, this does not mean that the market price was ‘wrong’.

B46

An important application of market variables is the notion of a replicating asset or a replicating portfolio of assets. A replicating asset is one whose cash flows

exactly

match, in all scenarios, the contractual cash flows of a

group of insurance contracts

in amount, timing and uncertainty. In some cases, a replicating asset may exist for some of the cash flows that arise from a group of insurance contracts. The fair value of that asset reflects both the expected present value of the cash flows from the asset and the risk associated with those cash flows. If a replicating portfolio of assets exists for some of the cash flows that arise from a group of insurance contracts, the entity can use the fair value of those assets to measure the relevant

fulfilment cash flows

instead of explicitly estimating the cash flows and discount rate.

B47

IFRS 17 does not require an entity to use a replicating portfolio technique. However, if a replicating asset or portfolio does exist for some of the cash flows that arise from

insurance contracts

and an entity chooses to use a different technique, the entity shall satisfy itself that a replicating portfolio technique would be unlikely to lead to a materially different measurement of those cash flows.

B48

Techniques other than a replicating portfolio technique, such as stochastic modelling techniques, may be more robust or easier to implement if there are significant interdependencies between cash flows that vary based on returns on assets and other cash flows. Judgement is required to determine the technique that best meets the objective of consistency with observable market variables in specific circumstances. In particular, the technique used must result in the measurement of any options and guarantees included in the

insurance contracts

being consistent with observable market prices (if any) for such options and guarantees.

Non-market variables

B49

Estimates of non-market variables shall reflect all reasonable and supportable evidence available without undue cost or effort, both external and internal.

B50

Non-market external data (for example, national mortality statistics) may have more or less relevance than internal data (for example, internally developed mortality statistics), depending on the circumstances. For example, an entity that issues life

insurance contracts

shall not rely solely on national mortality statistics, but shall consider all other reasonable and supportable internal and external sources of information available without undue cost or effort when developing unbiased estimates of probabilities for mortality scenarios for its insurance contracts. In developing those probabilities, an entity shall give more weight to the more persuasive information. For example:

(a)

internal mortality statistics may be more persuasive than national mortality data if national data is derived from a large population that is not representative of the insured population. This might be because, for example, the demographic characteristics of the insured population could significantly differ from those of the national population, meaning that an entity would need to place more weight on the internal data and less weight on the national statistics.

(b)

conversely, if the internal statistics are derived from a small population with characteristics that are believed to be close to those of the national population, and the national statistics are current, an entity shall place more weight on the national statistics.

B51

Estimated probabilities for non-market variables shall not contradict observable market variables. For example, estimated probabilities for future inflation rate scenarios shall be as consistent as possible with probabilities implied by market interest rates.

B52

In some cases, an entity may conclude that market variables vary independently of non-market variables. If so, the entity shall consider scenarios that reflect the range of outcomes for the non-market variables, with each scenario using the same observed value of the market variable.

B53

In other cases, market variables and non-market variables may be correlated. For example, there may be evidence that lapse rates (a non-market variable) are correlated with interest rates (a market variable). Similarly, there may be evidence that claim levels for house or car insurance are correlated with economic cycles and therefore with interest rates and expense amounts. The entity shall ensure that the probabilities for the scenarios and the

risk adjustments for the non-financial risk

that relates to the market variables are consistent with the observed market prices that depend on those market variables.

Using current estimates (

paragraph 33(c)

)

[

Refer:

Basis for Conclusions paragraphs BC155–BC157

]

B54

In estimating each cash flow scenario and its probability, an entity shall use all reasonable and supportable information available without undue cost or effort. An entity shall review the estimates that it made at the end of the previous reporting period and update them. In doing so, an entity shall consider whether:

(a)

the updated estimates faithfully represent the conditions at the end of the reporting period.

(b)

the changes in estimates faithfully represent the changes in conditions during the period. For example, suppose that estimates were at one end of a reasonable range at the beginning of the period. If the conditions have not changed, shifting the estimates to the other end of the range at the end of the period would not faithfully represent what has happened during the period. If an entity’s most recent estimates are different from its previous estimates, but conditions have not changed, it shall assess whether the new probabilities assigned to each scenario are justified. In updating its estimates of those probabilities, the entity shall consider both the evidence that supported its previous estimates and all newly available evidence, giving more weight to the more persuasive evidence.

B55

The probability assigned to each scenario shall reflect the conditions at the end of the reporting period. Consequently, applying

IAS 10

Events after the Reporting Period

, an event occurring after the end of the reporting period that resolves an uncertainty that existed at the end of the reporting period does not provide evidence of the conditions that existed at that date. For example, there may be a 20 per cent probability at the end of the reporting period that a major storm will strike during the remaining six months of an

insurance contract

. After the end of the reporting period but before the financial statements are authorised for issue, a major storm strikes. The

fulfilment cash flows

under that contract shall not reflect the storm that, with hindsight, is known to have occurred. Instead, the cash flows included in the measurement include the 20 per cent probability apparent at the end of the reporting period (with disclosure applying IAS 10 that a non-adjusting event occurred after the end of the reporting period).

B56

Current estimates of expected cash flows are not necessarily identical to the most recent actual experience. For example, suppose that mortality experience in the reporting period was 20 per cent worse than the previous mortality experience and previous expectations of mortality experience. Several factors could have caused the sudden change in experience, including:

(a)

lasting changes in mortality;

(b)

changes in the characteristics of the insured population (for example, changes in underwriting or distribution, or selective lapses by

policyholders

in unusually good health);

(c)

random fluctuations; or

(d)

identifiable non-recurring causes.

B57

An entity shall investigate the reasons for the change in experience and develop new estimates of cash flows and probabilities in the light of the most recent experience, the earlier experience and other information. The result for the example in

paragraph B56

would typically be that the expected present value of death benefits changes, but not by as much as 20 per cent. In the example in paragraph B56, if mortality rates continue to be significantly higher than the previous estimates for reasons that are expected to continue, the estimated probability assigned to the high-mortality scenarios will increase.

B58

Estimates of non-market variables shall include information about the current level of

insured events

and information about trends. For example, mortality rates have consistently declined over long periods in many countries. The determination of the

fulfilment cash flows

reflects the probabilities that would be assigned to each possible trend scenario, taking account of all reasonable and supportable information available without undue cost or effort.

B59

Similarly, if cash flows allocated to a

group of insurance contracts

are sensitive to inflation, the determination of the

fulfilment cash flows

shall reflect current estimates of possible future inflation rates. Because inflation rates are likely to be correlated with interest rates, the measurement of fulfilment cash flows shall reflect the probabilities for each inflation scenario in a way that is consistent with the probabilities implied by the market interest rates used in estimating the discount rate (see

paragraph B51

B60

When estimating the cash flows, an entity shall take into account current expectations of future events that might affect those cash flows. The entity shall develop cash flow scenarios that reflect those future events, as well as unbiased estimates of the probability of each scenario. However, an entity shall not take into account current expectations of future changes in legislation that would change or discharge the present obligation or create new obligations under the existing

insurance contract

until the change in legislation is substantively enacted.

[

Refer:

Basis for Conclusions paragraph BC156

]

Cash flows within the contract boundary (

paragraph 34

)

B61

Estimates of cash flows in a scenario shall include all cash flows within the boundary of an existing contract and no other cash flows. An entity shall apply

paragraph 2

in determining the boundary of an existing contract.

[

Refer:

Basis for Conclusions paragraphs BC159–BC164

]

B62

Many

insurance contracts

have features that enable

policyholders

to take actions that change the amount, timing, nature or uncertainty of the amounts they will receive. Such features include renewal options, surrender options, conversion options and options to stop paying premiums while still receiving benefits under the contracts. The measurement of a

group of insurance contracts

shall reflect, on an expected value basis, the entity’s current estimates of how the policyholders in the group will exercise the options available, and the

risk adjustment for non-financial risk

shall reflect the entity’s current estimates of how the actual behaviour of the policyholders may differ from the expected behaviour. This requirement to determine the expected value applies regardless of the number of contracts in a group; for example it applies even if the group comprises a single contract. Thus, the measurement of a group of insurance contracts shall not assume a 100 per cent probability that policyholders will:

(a)

surrender their contracts, if there is some probability that some of the policyholders will not; or

(b)

continue their contracts, if there is some probability that some of the policyholders will not.

B63

When an issuer of an

insurance contract

is required by the contract to renew or otherwise continue the contract, it shall apply

paragraph 34

to assess whether premiums and related cash flows that arise from the renewed contract are within the boundary of the original contract.

B64

Paragraph 34

refers to an entity’s practical ability to set a price at a future date (a renewal date) that fully reflects the risks in the contract from that date. An entity has that practical ability in the absence of constraints that prevent the entity from setting the same price it would for a new contract with the same characteristics as the existing contract issued on that date, or if it can amend the benefits to be consistent with the price it will charge. Similarly, an entity has that practical ability to set a price when it can reprice an existing contract so that the price reflects overall changes in the risks in a

portfolio of insurance contracts

, even if the price set for each individual

policyholder

does not reflect the change in risk for that specific policyholder. When assessing whether the entity has the practical ability to set a price that fully reflects the risks in the contract or portfolio, it shall consider all the risks that it would consider when underwriting equivalent contracts on the renewal date for the remaining service. In determining the estimates of future cash flows at the end of a reporting period, an entity shall reassess the boundary of an

insurance contract

to include the effect of changes in circumstances on the entity’s substantive rights and obligations.

[

Refer:

Basis for Conclusions paragraphs BC161–BC164

]

B65

Cash flows within the boundary of an

insurance contract

are those that relate directly to the fulfilment of the contract, including cash flows for which the entity has discretion over the amount or timing.

[

Refer:

Basis for Conclusions paragraphs BC167–BC170A

]

The cash flows within the boundary include:

(a)

premiums (including premium adjustments and instalment premiums) from a

policyholder

and any additional cash flows that result from those premiums.

(b)

payments to (or on behalf of) a policyholder, including claims that have already been reported but have not yet been paid (ie reported claims), incurred claims for events that have occurred but for which claims have not been reported and all future claims for which the entity has a substantive obligation (see

paragraph 34

(c)

payments to (or on behalf of) a policyholder that vary depending on returns on

underlying items

(d)

payments to (or on behalf of) a policyholder resulting from derivatives, for example, options and guarantees embedded in the contract, to the extent that those options and guarantees are not separated from the insurance contract (see

paragraph 11(a)

(e)

an allocation of

insurance acquisition cash flows

attributable to the

portfolio

to which the contract belongs.

[

Refer:

Basis for Conclusions paragraphs BC175–BC184K

]

(f)

claim handling costs (ie the costs the entity will incur in investigating, processing and resolving claims under existing insurance contracts, including legal and loss-adjusters’ fees and internal costs of investigating claims and processing claim payments).

(g)

costs the entity will incur in providing contractual benefits paid in kind.

(h)

policy administration and maintenance costs, such as costs of premium billing and handling policy changes (for example, conversions and reinstatements). Such costs also include recurring commissions that are expected to be paid to intermediaries if a particular policyholder continues to pay the premiums within the boundary of the insurance contract.

(i)

transaction-based taxes (such as premium taxes, value added taxes and goods and services taxes) and levies (such as fire service levies and guarantee fund assessments) that arise directly from existing insurance contracts, or that can be attributed to them on a reasonable and consistent basis.

(j)

payments by the insurer in a fiduciary capacity to meet tax obligations incurred by the policyholder, and related receipts.

(k)

potential cash inflows from recoveries (such as salvage and subrogation) on future claims covered by existing insurance contracts and, to the extent that they do not qualify for recognition as separate assets, potential cash inflows from recoveries on past claims.

(ka)

costs the entity will incur:

(i)

performing investment activity, to the extent the entity performs that activity to enhance benefits from insurance coverage for policyholders. Investment activities enhance benefits from insurance coverage if the entity performs those activities expecting to generate an investment return from which policyholders will benefit if an insured event occurs.

[

Refer:

Basis for Conclusions paragraph BC283I]

(ii)

providing investment-return service to policyholders of insurance contracts without direct participation features (see

paragraph B119B

(iii)

providing investment-related service to policyholders of insurance contracts with direct participation features.

(l)

an allocation of fixed and variable overheads (such as the costs of accounting, human resources, information technology and support, building depreciation, rent, and maintenance and utilities) directly attributable to fulfilling insurance contracts. Such overheads are allocated to groups of contracts using methods that are systematic and rational, and are consistently applied to all costs that have similar characteristics.

(m)

any other costs specifically chargeable to the policyholder under the terms of the contract.

[IFRIC®

Update

, September 2023, Agenda Decision, ‘

Insurance Contracts

and

Financial Instruments

—Premiums Receivable from an Intermediary’

The Committee received requests about how an entity that issues insurance contracts (insurer) applies the requirements in IFRS 17 and IFRS 9 to premiums receivable from an intermediary.

In the fact pattern described in the requests, an intermediary acts as a link between an insurer and a policyholder to arrange an insurance contract between them. The policyholder has paid in cash the premiums to the intermediary, but the insurer has not yet received in cash the premiums from the intermediary. The agreement between the insurer and the intermediary allows the intermediary to pay the premiums to the insurer at a later date.

When the policyholder paid the premiums to the intermediary, the policyholder discharged its obligation under the insurance contract and the insurer is obliged to provide insurance contract services to the policyholder. If the intermediary fails to pay the premiums to the insurer, the insurer does not have the right to recover the premiums from the policyholder, or to cancel the insurance contract.

The requests asked whether, in the submitted fact pattern, the premiums receivable from the intermediary are future cash flows within the boundary of an insurance contract and included in the measurement of the group of insurance contracts applying IFRS 17 or are a separate financial asset applying IFRS 9. The requests set out two views.

Under the first view (View 1), the insurer determines that the premiums receivable from the intermediary are future cash flows within the boundary of an insurance contract. Applying View 1, when the policyholder pays the premiums to the intermediary:

for a group of contracts to which the premium allocation approach does not apply, the insurer continues to treat the premiums receivable from the intermediary as future cash flows within the boundary of an insurance contract and, applying IFRS 17, includes them in the measurement of the group of insurance contracts until recovered in cash; and

for a group of contracts to which the premium allocation approach applies, the insurer does not increase the liability for remaining coverage—it does so only when it recovers the premiums in cash from the intermediary.

Under the second view (View 2), because the payment by the policyholder discharges its obligation under the insurance contract, the insurer considers the right to receive premiums from the policyholder to be settled by the right to receive premiums from the intermediary. The insurer therefore determines that the premiums receivable from the intermediary are not future cash flows within the boundary of an insurance contract but, instead, a separate financial asset. Applying View 2, when the policyholder pays the premiums to the intermediary:

for a group of contracts to which the premium allocation approach does not apply, the insurer removes the premiums from the measurement of the group of insurance contracts and, applying IFRS 9, recognises a separate financial asset; and

for a group of contracts to which the premium allocation approach applies, the insurer increases the liability for remaining coverage and, applying IFRS 9, recognises a separate financial asset.

Applying the requirements in IFRS Accounting Standards

The Committee observed that IFRS 17 is the starting point for an insurer to consider how to account for its right to receive premiums under an insurance contract.

Paragraph 33 of IFRS 17 requires an insurer to include in the measurement of a group of insurance contracts an estimate of all the future cash flows within the boundary of each contract in the group. Paragraph B65 explains that cash flows within the boundary of an insurance contract are those that relate directly to the fulfilment of the contract, including premiums from a policyholder.

The Committee observed that paragraph B65 of IFRS 17 does not distinguish between premiums to be collected directly from a policyholder and premiums to be collected through an intermediary. In applying IFRS 17, premiums from a policyholder collected through an intermediary are therefore included in the measurement of a group of insurance contracts.

Paragraph 34 of IFRS 17 specifies that cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting period in which the entity can compel the policyholder to pay the premiums or in which the entity has a substantive obligation to provide the policyholder with insurance contract services.

In the fact pattern described in the requests, the insurer has not recovered the premiums in cash, but the policyholder has discharged its obligation under the insurance contract. The Committee observed that IFRS 17 is silent on whether future cash flows within the boundary of an insurance contract are removed from the measurement of a group of insurance contracts only when these cash flows are recovered or settled in cash.

Therefore, the Committee observed that, in accounting for premiums receivable from an intermediary when payment by the policyholder discharges the policyholder’s obligation under the insurance contract, an insurer develops and applies an accounting policy in accordance with IAS 8

Accounting Policies, Changes in Accounting Estimates and Errors

[now

Basis of Preparation of Financial Statements

] to determine when cash flows are removed from the measurement of a group of insurance contracts. The insurer could determine that cash flows are removed when the cash flows are recovered or settled in cash (View 1), or when the policyholder’s obligation under the insurance contract is discharged (View 2).

IFRS 17 and IFRS 9 deal differently with the measurement, presentation and disclosure of expected credit losses from premiums receivable from an intermediary. The Committee considered that, depending on which view (View 1 or View 2) an insurer applies, it is required to apply all the measurement and disclosure requirements in the applicable IFRS Accounting Standards. Therefore, an insurer applies either IFRS 17 (including paragraph 131, which requires disclosure of information about the credit risk that arises from contracts within the scope of IFRS 17) or IFRS 9 (and the requirements in IFRS 7

Financial Instruments: Disclosures

) to premiums receivable from an intermediary.

Conclusion

In the light of its analysis, the Committee considered whether to add a standard-setting project on when cash flows are removed from the measurement of a group of insurance contracts to the work plan. The Committee noted that any such project would involve assessing whether changes to the Accounting Standards would have unintended consequences. This assessment may take considerable time and effort to complete because it would involve, among other steps, analysing a broad range of contracts (not only those set out in the fact pattern described in the requests). The Committee observed that the application of either View 1 or View 2 when accounting for premiums paid by a policyholder and receivable from an intermediary would provide users of financial statements with useful information based on the requirements in IFRS 17 or IFRS 9

Consequently, the Committee concluded that a project would not be sufficiently narrow in scope that the IASB or the Committee could address it in an efficient manner. The Committee therefore decided not to add a standard-setting project to the work plan.]

B66

The following cash flows shall not be included when estimating the cash flows that will arise as the entity fulfils an existing

insurance contract

(a)

investment returns. Investments are recognised, measured and presented separately.

(b)

cash flows (payments or receipts) that arise under

reinsurance contracts

held. Reinsurance contracts held are recognised, measured and presented separately.

(c)

cash flows that may arise from future insurance contracts, ie cash flows outside the boundary of existing contracts (see

paragraphs 34–35

(d)

cash flows relating to costs that cannot be directly attributed to the

portfolio of insurance contracts

that contain the contract, such as some product development and training costs. Such costs are recognised in profit or loss when incurred.

(e)

cash flows that arise from abnormal amounts of wasted labour or other resources that are used to fulfil the contract. Such costs are recognised in profit or loss when incurred.

(f)

income tax payments and receipts the insurer does not pay or receive in a fiduciary capacity or that are not specifically chargeable to the policyholder under the terms of the contract.

[

Refer:

Basis for Conclusions paragraph BC170A]

(g)

cash flows between different components of the reporting entity, such as

policyholder

funds and shareholder funds, if those cash flows do not change the amount that will be paid to the policyholders.

(h)

cash flows arising from components separated from the insurance contract and accounted for using other applicable Standards (see

paragraphs 10–13

B66A

Before the recognition of a group of insurance contracts, an entity might be required to recognise an asset or liability for cash flows related to the group of insurance contracts other than insurance acquisition cash flows either because of the occurrence of the cash flows or because of the requirements of another IFRS Standard. Cash flows are related to the group of insurance contracts if those cash flows would have been included in the fulfilment cash flows at the date of initial recognition of the group had they been paid or received after that date. To apply

paragraph 38(c)(ii)

an entity shall derecognise such an asset or liability to the extent that the asset or liability would not be recognised separately from the group of insurance contracts if the cash flow or the application of the IFRS Standard occurred at the date of initial recognition of the group of insurance contracts.

[

Refer:

Basis for Conclusions paragraphs BC184L–BC184N]

Contracts with cash flows that affect or are affected by cash flows to

policyholders

of other contracts

[

Refer:

Basis for Conclusions paragraphs BC171–BC174

]

B67

Some

insurance contracts

affect the cash flows to

policyholders

of other contracts by requiring:

(a)

the policyholder to share with policyholders of other contracts the returns on the same specified pool of

underlying items

; and

(b)

either:

(i)

the policyholder to bear a reduction in their share of the returns on the underlying items because of payments to policyholders of other contracts that share in that pool, including payments arising under guarantees made to policyholders of those other contracts; or

(ii)

policyholders of other contracts to bear a reduction in their share of returns on the underlying items because of payments to the policyholder, including payments arising from guarantees made to the policyholder.

B68

Sometimes, such contracts will affect the cash flows to

policyholders

of contracts in other groups. The

fulfilment cash flows

of each group reflect the extent to which the contracts in the group cause the entity to be affected by expected cash flows, whether to policyholders in that group or to policyholders in another group. Hence the fulfilment cash flows for a group:

(a)

include payments arising from the terms of existing contracts to policyholders of contracts in other groups, regardless of whether those payments are expected to be made to current or future policyholders; and

(b)

exclude payments to policyholders in the group that, applying (a), have been included in the fulfilment cash flows of another group.

B69

For example, to the extent that payments to

policyholders

in one group are reduced from a share in the returns on

underlying items

of CU350 to CU250 because of payments of a guaranteed amount to policyholders in another group, the

fulfilment cash flows

of the first group would include the payments of CU100 (ie would be CU350) and the fulfilment cash flows of the second group would exclude CU100 of the guaranteed amount.

B70

Different practical approaches can be used to determine the

fulfilment cash flows

of groups of contracts that affect or are affected by cash flows to

policyholders

of contracts in other groups. In some cases, an entity might be able to identify the change in the

underlying items

and resulting change in the cash flows only at a higher level of aggregation than the groups. In such cases, the entity shall allocate the effect of the change in the underlying items to each group on a systematic and rational basis.

B71

After all insurance contract services have been provided to the contracts in a group, the

fulfilment cash flows

may still include payments expected to be made to current

policyholders

in other groups or future policyholders. An entity is not required to continue to allocate such fulfilment cash flows to specific groups but can instead recognise and measure a liability for such fulfilment cash flows arising from all groups.

Discount rates (

paragraph 36

)

[

Refer:

Basis for Conclusions paragraphs BC185–BC205B

]

B72

An entity shall use the following discount rates in applying IFRS 17:

(a)

to measure the

fulfilment cash flows

—current discount rates applying

paragraph 36

;

(b)

to determine the interest to accrete on the

contractual service margin

applying

paragraph 44(b)

for

insurance contracts without direct participation features

—discount rates determined at the date of initial recognition of a

group of contracts

, applying paragraph 36 to nominal cash flows that do not vary based on the returns on any

underlying items

;

[

Refer:

Illustrative Examples, Example 6 paragraph IE71

]

(c)

to measure the changes to the contractual service margin applying

paragraphs B96(a)‒B96(b) and B96(d)

for insurance contracts without direct participation features—discount rates applying paragraph 36 determined on initial recognition;

[

Refer:

Illustrative Examples, Example 6 paragraph IE71

]

(d)

for groups of contracts applying the premium allocation approach that have a significant financing component, to adjust the carrying amount of the

liability for remaining coverage

applying

paragraph 56

—discount rates applying paragraph 36 determined on initial recognition;

(e)

if an entity chooses to disaggregate insurance finance income or expenses between profit or loss and other comprehensive income (see

paragraph 88

), to determine the amount of the insurance finance income or expenses included in profit or loss:

(i)

for groups of insurance contracts for which changes in assumptions that relate to

financial risk

do not have a substantial effect on the amounts paid to

policyholders

, applying

paragraph B131

—discount rates determined at the date of initial recognition of a

group of contracts

, applying paragraph 36 to nominal cash flows that do not vary based on the returns on any underlying items;

(ii)

for groups of insurance contracts for which changes in assumptions that relate to financial risk have a substantial effect on the amounts paid to policyholders, applying

paragraph B132(a)(i)

—discount rates that allocate the remaining revised expected finance income or expenses over the remaining duration of the group of contracts at a constant rate; and

(iii)

for groups of contracts applying the premium allocation approach applying

paragraphs 59(b)

and

B133

—discount rates determined at the date of the incurred claim, applying paragraph 36 to nominal cash flows that do not vary based on the returns on any underlying items.

B73

To determine the discount rates at the date of initial recognition of a

group of contracts

described in

paragraphs B72(b)–B72(e)

, an entity may use weighted-average discount rates over the period that contracts in the group are issued, which applying

paragraph 22

cannot exceed one year.

B74

Estimates of discount rates shall be consistent with other estimates used to measure

insurance contracts

to avoid double counting or omissions; for example:

(a)

cash flows that do not vary based on the returns on any

underlying items

shall be discounted at rates that do not reflect any such variability;

(b)

cash flows that vary based on the returns on any financial underlying items shall be:

(i)

discounted using rates that reflect that variability; or

(ii)

adjusted for the effect of that variability and discounted at a rate that reflects the adjustment made.

(c)

nominal cash flows (ie those that include the effect of inflation) shall be discounted at rates that include the effect of inflation; and

(d)

real cash flows (ie those that exclude the effect of inflation) shall be discounted at rates that exclude the effect of inflation.

B75

Paragraph B74(b)

requires cash flows that vary based on the returns on

underlying items

to be discounted using rates that reflect that variability, or to be adjusted for the effect of that variability and discounted at a rate that reflects the adjustment made. The variability is a relevant factor regardless of whether it arises because of contractual terms or because the entity exercises discretion, and regardless of whether the entity holds the underlying items.

[

Refer:

Basis for Conclusions paragraphs BC199–BC205

]

B76

Cash flows that vary with returns on

underlying items

with variable returns, but that are subject to a guarantee of a minimum return, do not vary solely based on the returns on the underlying items, even when the guaranteed amount is lower than the expected return on the underlying items. Hence, an entity shall adjust the rate that reflects the variability of the returns on the underlying items for the effect of the guarantee, even when the guaranteed amount is lower than the expected return on the underlying items.

[

Refer:

Basis for Conclusions paragraphs BC202–BC203

]

B77

IFRS 17 does not require an entity to divide estimated cash flows into those that vary based on the returns on

underlying items

and those that do not. If an entity does not divide the estimated cash flows in this way, the entity shall apply discount rates appropriate for the estimated cash flows as a whole; for example, using stochastic modelling techniques or risk-neutral measurement techniques.

[

Refer:

Basis for Conclusions paragraph BC205

]

B78

Discount rates shall include only relevant factors, ie factors that arise from the time value of money, the characteristics of the cash flows and the liquidity characteristics of the

insurance contracts

. Such discount rates may not be directly observable in the market. Hence, when observable market rates for an instrument with the same characteristics are not available, or observable market rates for similar instruments are available but do not separately identify the factors that distinguish the instrument from the insurance contracts, an entity shall estimate the appropriate rates. IFRS 17 does not require a particular estimation technique for determining discount rates. In applying an estimation technique, an entity shall:

(a)

maximise the use of observable inputs (see

paragraph B44

) and reflect all reasonable and supportable information on non-market variables available without undue cost or effort, both external and internal (see

paragraph B49

). In particular, the discount rates used shall not contradict any available and relevant market data, and any non-market variables used shall not contradict observable market variables.

(b)

reflect current market conditions from the perspective of a market participant.

(c)

exercise judgement to assess the degree of similarity between the features of the insurance contracts being measured and the features of the instrument for which observable market prices are available and adjust those prices to reflect the differences between them.

[

Refer:

Basis for Conclusions paragraphs BC193–BC197

]

B79

For cash flows of

insurance contracts

that do not vary based on the returns on

underlying items

, the discount rate reflects the yield curve in the appropriate currency for instruments that expose the holder to no or negligible credit risk, adjusted to reflect the liquidity characteristics of the

group of insurance contracts

. That adjustment shall reflect the difference between the liquidity characteristics of the group of insurance contracts and the liquidity characteristics of the assets used to determine the yield curve. Yield curves reflect assets traded in active markets that the holder can typically sell readily at any time without incurring significant costs. In contrast, under some insurance contracts the entity cannot be forced to make payments earlier than the occurrence of

insured events

, or dates specified in the contracts.

[

Refer:

Basis for Conclusions paragraphs BC193–BC196

]

B80

Hence, for cash flows of

insurance contracts

that do not vary based on the returns on

underlying items

, an entity may determine discount rates by adjusting a liquid risk-free yield curve to reflect the differences between the liquidity characteristics of the financial instruments that underlie the rates observed in the market and the liquidity characteristics of the insurance contracts (a bottom-up approach).

[

Refer:

Basis for Conclusions paragraphs BC193–BC196

]

B81

Alternatively, an entity may determine the appropriate discount rates for

insurance contracts

based on a yield curve that reflects the current market rates of return implicit in a fair value measurement of a reference portfolio of assets (a top-down approach). An entity shall adjust that yield curve to eliminate any factors that are not relevant to the insurance contracts, but is not required to adjust the yield curve for differences in liquidity characteristics of the insurance contracts and the reference portfolio.

[

Refer:

Basis for Conclusions paragraphs BC193–BC196

]

B82

In estimating the yield curve described in

paragraph B81

(a)

if there are observable market prices in active markets for assets in the reference portfolio, an entity shall use those prices (consistent with

paragraph 69 of IFRS 13

(b)

if a market is not active, an entity shall adjust observable market prices for similar assets to make them comparable to market prices for the assets being measured (consistent with

paragraph 83 of IFRS 13

(c)

if there is no market for assets in the reference portfolio, an entity shall apply an estimation technique. For such assets (consistent with

paragraph 89 of IFRS 13

) an entity shall:

(i)

develop unobservable inputs using the best information available in the circumstances. Such inputs might include the entity’s own data and, in the context of IFRS 17, the entity might place more weight on long-term estimates than on short-term fluctuations; and

(ii)

adjust those data to reflect all information about market participant assumptions that is reasonably available.

B83

In adjusting the yield curve, an entity shall adjust market rates observed in recent transactions in instruments with similar characteristics for movements in market factors since the transaction date, and shall adjust observed market rates to reflect the degree of dissimilarity between the instrument being measured and the instrument for which transaction prices are observable. For cash flows of

insurance contracts

that do not vary based on the returns on the assets in the reference portfolio, such adjustments include:

(a)

adjusting for differences between the amount, timing and uncertainty of the cash flows of the assets in the portfolio and the amount, timing and uncertainty of the cash flows of the insurance contracts; and

(b)

excluding market risk premiums for credit risk, which are relevant only to the assets included in the reference portfolio.

B84

In principle, for cash flows of

insurance contracts

that do not vary based on the returns of the assets in the reference portfolio, there should be a single illiquid risk-free yield curve that eliminates all uncertainty about the amount and timing of cash flows. However, in practice the top-down approach and the bottom-up approach may result in different yield curves, even in the same currency. This is because of the inherent limitations in estimating the adjustments made under each approach, and the possible lack of an adjustment for different liquidity characteristics in the top-down approach. An entity is not required to reconcile the discount rate determined under its chosen approach with the discount rate that would have been determined under the other approach.

B85

IFRS 17 does not specify restrictions on the reference portfolio of assets used in applying

paragraph B81

. However, fewer adjustments would be required to eliminate factors that are not relevant to the

insurance contracts

when the reference portfolio of assets has similar characteristics. For example, if the cash flows from the insurance contracts do not vary based on the returns on

underlying items

, fewer adjustments would be required if an entity used debt instruments as a starting point rather than equity instruments. For debt instruments, the objective would be to eliminate from the total bond yield the effect of credit risk and other factors that are not relevant to the insurance contracts. One way to estimate the effect of credit risk is to use the market price of a credit derivative as a reference point.

Risk adjustment for non-financial risk

(

paragraph 37

)

[

Refer:

Basis for Conclusions paragraphs BC206–BC217

]

B86

The

risk adjustment for non-financial risk

relates to risk arising from

insurance contracts

other than

financial risk

. Financial risk is included in the estimates of the future cash flows or the discount rate used to adjust the cash flows. The risks covered by the risk adjustment for non-financial risk are

insurance risk

and other non-financial risks such as lapse risk and expense risk (see

paragraph B14

B87

The

risk adjustment for non-financial risk

for

insurance contracts

measures the compensation that the entity would require to make the entity indifferent between:

(a)

fulfilling a liability that has a range of possible outcomes arising from non-financial risk; and

(b)

fulfilling a liability that will generate fixed cash flows with the same expected present value as the insurance contracts.

For example, the risk adjustment for non-financial risk would measure the compensation the entity would require to make it indifferent between fulfilling a liability that—because of non-financial risk—has a 50 per cent probability of being CU90 and a 50 per cent probability of being CU110, and fulfilling a liability that is fixed at CU100. As a result, the risk adjustment for non-financial risk conveys information to users of financial statements about the amount charged by the entity for the uncertainty arising from non-financial risk about the amount and timing of cash flows.

B88

Because the

risk adjustment for non-financial risk

reflects the compensation the entity would require for bearing the non-financial risk arising from the uncertain amount and timing of the cash flows, the risk adjustment for non-financial risk also reflects:

(a)

the degree of diversification benefit the entity includes when determining the compensation it requires for bearing that risk; and

(b)

both favourable and unfavourable outcomes, in a way that reflects the entity’s degree of risk aversion.

B89

The purpose of the

risk adjustment for non-financial risk

is to measure the effect of uncertainty in the cash flows that arise from

insurance contracts

, other than uncertainty arising from

financial risk

. Consequently, the risk adjustment for non-financial risk shall reflect all non-financial risks associated with the insurance contracts. It shall not reflect the risks that do not arise from the insurance contracts, such as general operational risk.

B90

The

risk adjustment for non-financial risk

shall be included in the measurement in an explicit way. The risk adjustment for non-financial risk is conceptually separate from the estimates of future cash flows and the discount rates that adjust those cash flows. The entity shall not double-count the risk adjustment for non-financial risk by, for example, also including the risk adjustment for non-financial risk implicitly when determining the estimates of future cash flows or the discount rates. The discount rates that are disclosed to comply with

paragraph 120

shall not include any implicit adjustments for non-financial risk.

B91

IFRS 17 does not specify the estimation technique(s) used to determine the

risk adjustment for non-financial risk

. However, to reflect the compensation the entity would require for bearing the non-financial risk, the risk adjustment for non-financial risk shall have the following characteristics:

(a)

risks with low frequency and high severity will result in higher risk adjustments for non-financial risk than risks with high frequency and low severity;

(b)

for similar risks, contracts with a longer duration will result in higher risk adjustments for non-financial risk than contracts with a shorter duration;

(c)

risks with a wider probability distribution will result in higher risk adjustments for non-financial risk than risks with a narrower distribution;

(d)

the less that is known about the current estimate and its trend, the higher will be the risk adjustment for non-financial risk; and

(e)

to the extent that emerging experience reduces uncertainty about the amount and timing of cash flows, risk adjustments for non-financial risk will decrease and vice versa.

[

Refer:

Basis for Conclusions paragraphs BC213 and BC214A

]

B92

An entity shall apply judgement when determining an appropriate estimation technique for the

risk adjustment for non-financial risk

. When applying that judgement, an entity shall also consider whether the technique provides concise and informative disclosure so that users of financial statements can benchmark the entity’s performance against the performance of other entities.

Paragraph 119

requires an entity that uses a technique other than the confidence level technique for determining the risk adjustment for non-financial risk to disclose the technique used and the confidence level corresponding to the results of that technique.

[

Refer:

Basis for Conclusions paragraphs BC215–BC217

]

Initial recognition of transfers of

insurance contracts

and business combinations (

paragraph 39

)

[

Refer:

Basis for Conclusions paragraphs BC323–BC327I

Illustrative Examples, Examples 13 and 14

]

B93

When an entity acquires

insurance contracts

issued or

reinsurance contracts

held in a transfer of insurance contracts that do not form a business or in a business combination within the

scope of IFRS 3

[

Refer:

Basis for Conclusions paragraph BC327A]

the entity shall apply

paragraphs 14–24

to identify the groups of contracts acquired, as if it had entered into the contracts on the date of the transaction.

B94

An entity shall use the consideration received or paid for the contracts as a proxy for the premiums received. The consideration received or paid for the contracts excludes the consideration received or paid for any other assets and liabilities acquired in the same transaction. In a business combination within the

scope of IFRS 3

, the consideration received or paid is the fair value of the contracts at that date. In determining that fair value, an entity shall not apply

paragraph 47 of IFRS 13

(relating to demand features).

[

Refer:

Basis for Conclusions paragraphs BC165 and BC166

]

B95

Unless the premium allocation approach for the

liability for remaining coverage

paragraphs 55–59

and

69–70A

applies, on initial recognition the

contractual service margin

is calculated applying

paragraph 38

for acquired

insurance contracts

issued and

paragraph 65

for acquired

reinsurance contracts

held using the consideration received or paid for the contracts as a proxy for the premiums received or paid at the date of initial recognition.

B95A

If acquired insurance contracts issued are onerous, applying

paragraph 47

, the entity shall recognise the excess of the

fulfilment cash flows

over the consideration paid or received as part of goodwill or gain on a bargain purchase for contracts acquired in a business combination within the

scope of IFRS 3

, or as a loss in profit or loss for contracts acquired in a transfer. The entity shall establish a loss component of the liability for remaining coverage for that excess, and apply

paragraphs 49–52

to allocate subsequent changes in fulfilment cash flows to that loss component.

B95B

For a group of reinsurance contracts held to which

paragraphs 66A–66B

apply, an entity shall determine the loss-recovery component of the asset for remaining coverage at the date of the transaction by multiplying:

(a)

the loss component of the liability for remaining coverage of the underlying insurance contracts at the date of the transaction; and

(b)

the percentage of claims on the underlying insurance contracts the entity expects at the date of the transaction to recover from the group of reinsurance contracts held.

[

Refer:

Basis for Conclusions paragraph BC315D(b)(i)

]

B95C

The entity shall recognise the amount of the loss-recovery component determined applying

paragraph B95B

as part of goodwill or gain on a bargain purchase for reinsurance contracts held acquired in a business combination within the

scope of IFRS 3

, or as income in profit or loss for contracts acquired in a transfer.

B95D

Applying

paragraphs 14‒22

, at the date of the transaction an entity might include in an onerous group of insurance contracts both onerous insurance contracts covered by a group of reinsurance contracts held and onerous contracts not covered by the group of reinsurance contracts held. To apply paragraph B95B in such cases, an entity shall use a systematic and rational basis of allocation to determine the portion of the loss component of the group of insurance contracts that relates to insurance contracts covered by the group of reinsurance contracts held.

[

Refer:

Basis for Conclusions paragraphs BC315H and BC315]

Asset for insurance acquisition cash flows

[

Refer:

Basis for Conclusions paragraphs BC327H‒BCBC327I]

B95E

When an entity acquires insurance contracts issued in a transfer of insurance contracts that do not form a business or in a business combination within the

scope of IFRS 3

, the entity shall recognise an asset for insurance acquisition cash flows at fair value at the date of the transaction for the rights to obtain:

(a)

future insurance contracts that are renewals of insurance contracts recognised at the date of the transaction; and

(b)

future insurance contracts, other than those in (a), after the date of the transaction without paying again insurance acquisition cash flows the acquiree has already paid that are directly attributable to the related portfolio of insurance contracts.

B95F

At the date of the transaction, the amount of any asset for insurance acquisition cash flows shall not be included in the measurement of the acquired group of insurance contracts applying

paragraphs B93‒B95A

Changes in the carrying amount of the

contractual service margin

for

insurance contracts without direct participation features

(

paragraph 44

)

[

Refer:

Basis for Conclusions paragraphs BC22–BC26

BC59–BC60

and

BC218–BC237

]

B96

For

insurance contracts without direct participation features

paragraph 44(c)

requires an adjustment to the

contractual service margin

of a

group of insurance contracts

for changes in

fulfilment cash flows

that relate to future service. These changes comprise:

(a)

experience adjustments

arising from premiums received in the period that relate to future service, and related cash flows such as

insurance acquisition cash flows

and premium-based taxes, measured at the discount rates specified in

paragraph B72(c)

[

Refer:

Basis for Conclusions paragraph BC233

]

(b)

changes in estimates of the present value of the future cash flows in the

liability for remaining coverage

, except those described in

paragraph B97(a)

, measured at the discount rates specified in paragraph B72(c).

[

Refer:

Basis for Conclusions paragraphs BC233 and BC234

]

(c)

differences between any

investment component

expected to become payable in the period and the actual investment component that becomes payable in the period. Those differences are determined by comparing (i) the actual investment component that becomes payable in the period with (ii) the payment in the period that was expected at the start of the period plus any insurance finance income or expenses related to that expected payment before it becomes payable.

[

Refer:

Basis for Conclusions paragraph BC235

]

(ca)

differences between any loan to a policyholder expected to become repayable in the period and the actual loan to a policyholder that becomes repayable in the period. Those differences are determined by comparing (i) the actual loan to a policyholder that becomes repayable in the period with (ii) the repayment in the period that was expected at the start of the period plus any insurance finance income or expenses related to that expected repayment before it becomes repayable.

(d)

changes in the

risk adjustment for non-financial risk

that relate to future service. An entity is not required to disaggregate the change in the risk adjustment for non-financial risk between (i) a change related to non-financial risk and (ii) the effect of the time value of money and changes in the time value of money. If an entity makes such a disaggregation, it shall adjust the contractual service margin for the change related to non-financial risk, measured at the discount rates specified in paragraph B72(c).

[

Refer:

Basis for Conclusions paragraphs BC224(d)

]

[

Refer:

Illustrative Examples:

Example 2A paragraph IE20

Example 2B paragraph IE26

Example 6 paragraph IE71

Example 8 paragraph IE94

]

B97

An entity shall not adjust the

contractual service margin

for a

group of insurance contracts

without direct participation features for the following changes in

fulfilment cash flows

because they do not relate to future service:

(a)

the effect of the time value of money and changes in the time value of money and the effect of

financial risk

and changes in financial risk. These effects comprise:

(i)

the effect, if any, on estimated future cash flows;

(ii)

the effect, if disaggregated, on the risk adjustment for non-financial risk; and

(iii)

the effect of a change in discount rate.

[

Refer:

Basis for Conclusions paragraphs BC228–BC231

]

(b)

changes in estimates of fulfilment cash flows in the

liability for incurred claims

[

Refer:

Basis for Conclusions paragraph BC232

]

(c)

experience adjustments

, except those described in

paragraph B96(a)

[

Refer:

Basis for Conclusions paragraph BC233

]

[

Refer:

Illustrative Examples:

Example 2A paragraph IE20

Example 2B paragraph IE26

Example 6 paragraph IE71

Example 8 paragraph IE94

]

B98

The terms of some

insurance contracts without direct participation features

give an entity discretion over the cash flows to be paid to

policyholders

. A change in the discretionary cash flows is regarded as relating to future service, and accordingly adjusts the

contractual service margin

. To determine how to identify a change in discretionary cash flows, an entity shall specify at inception of the contract the basis on which it expects to determine its commitment under the contract; for example, based on a fixed interest rate, or on returns that vary based on specified asset returns.

[

Refer:

Basis for Conclusions paragraph BC237

]

B99

An entity shall use that specification to distinguish between the effect of changes in assumptions that relate to

financial risk

on that commitment (which do not adjust the

contractual service margin

) and the effect of discretionary changes to that commitment (which adjust the contractual service margin).

[

Refer:

Basis for Conclusions paragraph BC237

Illustrative Examples, Example 6

]

B100

If an entity cannot specify at inception of the contract what it regards as its commitment under the contract and what it regards as discretionary, it shall regard its commitment to be the return implicit in the estimate of the

fulfilment cash flows

at inception of the contract, updated to reflect current assumptions that relate to

financial risk

[

Refer:

Basis for Conclusions paragraph BC237

]

Changes in the carrying amount of the

contractual service margin

for

insurance contracts with direct participation features

(

paragraph 45

)

[

Refer:

Basis for Conclusions paragraphs BC218–BC226

and

BC238–BC269C

]

B101

Insurance contracts with direct participation features

are

insurance contracts

that are substantially investment‑related service contracts under which an entity promises an investment return based on

underlying items

. Hence, they are defined as insurance contracts for which:

(a)

the contractual terms specify that the

policyholder

participates in a share of a clearly identified pool of underlying items (see

paragraphs B105–B106

);

(b)

the entity expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items (see

paragraph B107

); and

(c)

the entity expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value of the underlying items (see paragraph B107).

B102

An entity shall assess whether the conditions in

paragraph B101

are met using its expectations at inception of the

contract

and shall not reassess the conditions afterwards, unless the contract is modified, applying

paragraph 72

B103

To the extent that

insurance contracts

in a group affect the cash flows to

policyholders

of contracts in other groups (see

paragraphs B67–B71

), an entity shall assess whether the conditions in

paragraph B101

are met by considering the cash flows that the entity expects to pay the policyholders determined applying

paragraphs B68–B70

B104

The conditions in

paragraph B101

ensure that

insurance contracts with direct participation features

are contracts under which the entity’s obligation to the

policyholder

is the net of:

(a)

the obligation to pay the policyholder an amount equal to the fair value of the

underlying items

; and

(b)

a variable fee (see

paragraphs B110–B118

) that the entity will deduct from (a) in exchange for the future service provided by the insurance contract, comprising:

(i)

the amount of the entity’s share of the fair value of the underlying items; less

(ii)

fulfilment cash flows

that do not vary based on the returns on underlying items.

B105

A share referred to in

paragraph B101(a)

does not preclude the existence of the entity’s discretion to vary the amounts paid to the

policyholder

. However, the link to the

underlying items

must be enforceable (see

paragraph 2

B106

The pool of

underlying items

referred to in

paragraph B101(a)

can comprise any items, for example a reference portfolio of assets, the net assets of the entity, or a specified subset of the net assets of the entity, as long as they are clearly identified by the contract. An entity need not hold the identified pool of underlying items. However, a clearly identified pool of underlying items does not exist when:

(a)

an entity can change the underlying items that determine the amount of the entity’s obligation with retrospective effect; or

(b)

there are no underlying items identified, even if the policyholder could be provided with a return that generally reflects the entity’s overall performance and expectations, or the performance and expectations of a subset of assets the entity holds. An example of such a return is a crediting rate or dividend payment set at the end of the period to which it relates. In this case, the obligation to the policyholder reflects the crediting rate or dividend amounts the entity has set, and does not reflect identified underlying items.

B107

Paragraph B101(b)

requires that the entity expects a substantial share of the fair value returns on the

underlying items

will be paid to the

policyholder

and

paragraph B101(c)

requires that the entity expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value of the underlying items. An entity shall:

(a)

interpret the term ‘substantial’ in both paragraphs in the context of the objective of

insurance contracts with direct participation features

being contracts under which the entity provides investment‑related services and is compensated for the services by a fee that is determined by reference to the underlying items; and

(b)

assess the variability in the amounts in paragraphs B101(b) and B101(c):

(i)

over the duration of the insurance contract;

[

Refer:

Basis for Conclusions paragraph BC249D]

and

(ii)

on a present value probability-weighted average basis, not a best or worst outcome basis (see

paragraphs B37–B38

B108

For example, if the entity expects to pay a substantial share of the fair value returns on

underlying items

, subject to a guarantee of a minimum return, there will be scenarios in which:

(a)

the cash flows that the entity expects to pay to the

policyholder

vary with the changes in the fair value of the underlying items because the guaranteed return and other cash flows that do not vary based on the returns on underlying items do not exceed the fair value return on the underlying items; and

(b)

the cash flows that the entity expects to pay to the policyholder do not vary with the changes in the fair value of the underlying items because the guaranteed return and other cash flows that do not vary based on the returns on underlying items exceed the fair value return on the underlying items.

The entity’s assessment of the variability in

paragraph B101(c)

for this example will reflect a present value probability‑weighted average of all these scenarios.

B109

Reinsurance contracts

issued and reinsurance contracts held cannot be

insurance contracts with direct participation features

for the purposes of IFRS 17.

[

Refer:

Basis for Conclusions paragraphs BC248, BC249

BC249A(b)

and

BC249C

]

B110

For

insurance contracts with direct participation features

, the

contractual service margin

is adjusted to reflect the variable nature of the fee. Hence, changes in the amounts set out in

paragraph B104

are treated as set out in

paragraphs B111–B114

[

Refer:

Illustrative Examples, Examples 9

and

16 paragraph IE184

]

B111

Changes in the obligation to pay the

policyholder

an amount equal to the fair value of the

underlying items

(

paragraph B104(a)

) do not relate to future service and do not adjust the

contractual service margin

[

Refer:

Illustrative Examples, Example 9

and

Example 16 paragraph IE185

]

B112

Changes in the amount of the entity’s share of the fair value of the

underlying items

(

paragraph B104(b)(i)

) relate to future service and adjust the

contractual service margin

, applying

paragraph 45(b)

[

Refer:

Illustrative Examples, Example 9

and

Example 16 paragraph IE184

]

B113

Changes in the

fulfilment cash flows

that do not vary based on the returns on

underlying items

(

paragraph B104(b)(ii)

) comprise:

(a)

changes in the fulfilment cash flows other than those specified in (b). An entity shall apply

paragraphs B96–B97

, consistent with

insurance contracts without direct participation features

, to determine to what extent they relate to future service and, applying

paragraph 45(c)

, adjust the

contractual service margin

. All the adjustments are measured using current discount rates.

(b)

the change in the effect of the time value of money and

financial risks

not arising from the underlying items; for example, the effect of financial guarantees. These relate to future service and, applying paragraph 45(c), adjust the contractual service margin, except to the extent that

paragraph B115

applies.

[

Refer:

Illustrative Examples, Example 9

]

B114

An entity is not required to identify the adjustments to the

contractual service margin

required by

paragraphs B112 and B113

separately. Instead, a combined amount may be determined for some or all of the adjustments.

[

Refer:

Illustrative Examples, Example 9

]

Risk mitigation

[

Refer:

Basis for Conclusions paragraphs BC250–BC256H

]

B115

To the extent that an entity meets the conditions in

paragraph B116

, it may choose not to recognise a change in the

contractual service margin

to reflect some or all of the changes in the effect of the time value of money and financial risk on:

(a)

the amount of the entity’s share of the

underlying items

(see

paragraph B112

) if the entity mitigates the effect of financial risk on that amount using derivatives or reinsurance contracts held; and

(b)

the fulfilment cash flows set out in

paragraph B113(b)

if the entity mitigates the effect of financial risk on those

fulfilment cash flows

using derivatives, non-derivative financial instruments measured at fair value through profit or loss, or reinsurance contracts held.

[

Refer:

Basis for Conclusions paragraphs BC251

BC253

and

BC256A

]

B116

To apply

paragraph B115

, an entity must have a previously documented risk-management objective and strategy for mitigating financial risk as described in paragraph B115. In applying that objective and strategy:

(a)

an economic offset exists between the insurance contracts and the derivative, non-derivative financial instrument measured at fair value through profit or loss, or reinsurance contract held (ie the values of the insurance contracts and those risk mitigating items generally move in opposite directions because they respond in a similar way to the changes in the risk being mitigated). An entity shall not consider accounting measurement differences in assessing the economic offset.

(b)

credit risk does not dominate the economic offset.

B117

The entity shall determine the

fulfilment cash flows

in a group to which

paragraph B115

applies in a consistent manner in each reporting period.

B117A

If the entity mitigates the effect of financial risk using derivatives or non-derivative financial instruments measured at fair value through profit or loss, it shall include insurance finance income or expenses for the period arising from the application of

paragraph B115

in profit or loss. If the entity mitigates the effect of financial risk using reinsurance contracts held, it shall apply the same accounting policy for the presentation of insurance finance income or expenses arising from the application of paragraph B115 as the entity applies to the reinsurance contracts held applying

paragraphs 88

and

[

Refer:

Basis for Conclusions paragraphs BC256G–BC256H]

B118

If, and only if, any of the conditions in

paragraph B116

cease to be met an entity shall cease to apply

paragraph B115

from that date. An entity shall not make any adjustment for changes previously recognised in profit or loss.

Recognition of the

contractual service margin

in profit or loss

[

Refer:

Basis for Conclusions paragraphs BC279–BC283J

]

B119

An amount of the

contractual service margin

for a

group of insurance contracts

is recognised in profit or loss in each period to reflect the insurance contract services provided under the group of insurance contracts in that period (see

paragraphs 44(e)

45(e)

and

66(e)

). The amount is determined by:

(a)

identifying the coverage units in the group. The number of coverage units in a group is the quantity of insurance contract services provided by the contracts in the group, determined by considering for each contract the quantity of the benefits provided under a contract and its expected coverage period.

(b)

allocating the contractual service margin at the end of the period (before recognising any amounts in profit or loss to reflect the insurance contract services provided in the period) equally to each coverage unit provided in the current period and expected to be provided in the future.

(c)

recognising in profit or loss the amount allocated to coverage units provided in the period.

[

Refer:

Illustrative Examples, Examples 2

and

]

[IFRIC®

Update

, June 2022, Agenda Decision, ‘

Insurance Contracts—

Transfer of Insurance Coverage under a Group of Annuity Contracts’

The Committee received a request about a group of annuity contracts. The request asked how an entity determines the amount of the contractual service margin to recognise in profit or loss in a period because of the transfer of insurance coverage for survival in that period.

Fact pattern

The request described a group of annuity contracts under which the policyholder of each contract:

pays the premium up front and has no right to cancel the contract or seek a refund;

receives a periodic payment from the start of the annuity period for as long as the policyholder survives (for example, a fixed amount of CU100 for each year that the policyholder survives); and

receives no other services under the contract (for example, no other types of insurance coverage or investment-return service).

The fact pattern referred to groups of contracts for which the annuity period starts immediately after contract inception (‘immediate annuity’) and also those for which the annuity period starts on a specified date after contract inception (‘deferred annuity’)—for example, a contract entered into in 2022 for which the annuity period starts in 2042.

Applicable requirements in IFRS 17

Paragraph 44(e) of IFRS 17 requires an entity to adjust the carrying amount of the contractual service margin for the amount recognised as insurance revenue because of the transfer of insurance contract services in the period. The entity determines this amount by allocating the contractual service margin over the current and remaining coverage period applying paragraph B119 of IFRS 17.

Paragraph B119 of IFRS 17 states that an entity recognises in profit or loss in each period an amount of the contractual service margin to reflect the insurance contract services provided under the group of insurance contracts in that period. The amount is determined by:

allocating the contractual service margin at the end of the period equally to each coverage unit provided in the current period and expected to be provided in the future.

recognising in profit or loss the amount allocated to coverage units provided in the period.

The definition of insurance contract services in Appendix A to IFRS 17 describes insurance coverage as ‘coverage for an insured event’. An insured event is defined as ‘an uncertain future event covered by an insurance contract that creates insurance risk’.

Methods for applying the requirements to the fact pattern

The request sets out two methods of determining, for each contract in the group, the quantity of the benefits of insurance coverage provided in the current period and expected to be provided in the future.

Method 1

Current period

Expected to be provided in the future

Determined based on the annuity payment the policyholder is able to validly claim in the current period.

Determined based on the present value of the annuity payments the policyholder is expected to be able to validly claim in the future until the end of the coverage period (the balance of the expected future annuity payments as at the end of the current period).

Method 2

Current period

Expected to be provided in the future

Determined based on the total of: (i) the annuity payment the policyholder is able to validly claim in the current period, and (ii) the present value of the annuity payments the policyholder is expected to be able to validly claim in the future until the end of the coverage period (the balance of the expected future annuity payments as at the end of the current period).

Determined based on the present value of the balances of the expected future annuity payments as at the beginning of each future period, until the end of the coverage period.

Applying paragraph B119 of IFRS 17

Applying paragraph B119(a) of IFRS 17, an entity:

identifies the insurance contract services to be provided under the group of contracts. In the fact pattern described in the request, insurance coverage for survival is the only insurance contract service provided under the group of contracts.

considers the expected coverage period for each contract in the group. In the fact pattern described in the request, the expected coverage period would reflect the entity’s expectations of how long the policyholder will survive.

considers the quantity of the benefits provided under each contract in the group.

IFRS 17 does not prescribe a method for determining the quantity of the benefits provided under a contract. Instead, an entity is required to use a method that meets the principle in paragraph B119 of reflecting the insurance contract services provided in each period. In selecting a method that meets that principle, an entity considers (a) the benefits provided to the policyholder under a contract with respect to the insurance contract services provided, and (b) when those benefits are provided. Different methods may achieve the principle depending on the facts and circumstances.

In the fact pattern described in the request, the terms of the annuity contract provide the policyholder with the right to claim a periodic amount (CU100 in the example) from the start of the annuity period for as long as the policyholder survives. Consequently, the Committee observed that:

the benefits provided to the policyholder under the contract with respect to the insurance coverage for survival are the policyholder’s right to claim a periodic amount for as long as they survive. The policyholder also benefits from transferring to the entity the risk related to the uncertainty about how long they will survive. However, IFRS 17 requires an entity to account for that insurance risk in the risk adjustment for non-financial risk, separately from the contractual service margin.

the benefits of being able to claim a periodic amount are provided to the policyholder in each year of the policyholder’s survival from the start of the annuity period:

the policyholder has no right to claim an amount for surviving in periods before the start of the annuity period. The entity accepts insurance risk from inception of the contract but provides no benefits to the policyholder in the form of amounts that can be claimed until the annuity period starts. Paragraphs BC140–BC141 of the Basis for Conclusions on IFRS 17 explain that an entity can accept insurance risk before it is obliged to perform an insurance coverage service.

ii.

survival in one year does not provide the policyholder with the right to claim amounts that compensate the policyholder for surviving in future years; that is, the policyholder’s right to claim amounts in future years is contingent on the policyholder surviving in those future years.

The Committee’s conclusion

The Committee concluded that, in applying IFRS 17 to determine the quantity of the benefits of insurance coverage for survival provided under each annuity contract, a method based on:

the amount of the annuity payment the policyholder is able to validly claim (Method 1) meets the principle in paragraph B119 of IFRS 17 of reflecting the insurance coverage provided in each period by:

assigning a quantity of the benefits only to periods in which an insured event (survival of the policyholder) can occur, resulting in a policyholder having a right to make a valid claim; and

ii.

aligning the quantity of the benefits provided in a period with the amount the policyholder is able to validly claim if an insured event occurs in that period.

the present value of expected future annuity payments (Method 2) does not meet the principle in paragraph B119 of IFRS 17 of reflecting the insurance coverage provided in each period because it would:

assign a quantity of the benefits to periods in which no insured event occurs (for example, to the deferral period of a deferred annuity contract); and

ii.

misrepresent the quantity of the benefits provided in a period by considering amounts the policyholder is able to claim and benefit from only in future periods.

The request asked only about the recognition of the contractual service margin in profit or loss. For the annuity contracts described in the request, the entity accepts insurance risk related to the uncertainty about how long the policyholder will survive. The Committee noted that the entity would apply other requirements in IFRS 17 to recognise in profit or loss—separately from the contractual service margin—the risk adjustment for non-financial risk. The risk adjustment for non-financial risk represents the compensation the entity requires for bearing the uncertainty about the amount and timing of the cash flows that arise from non-financial risk. The Committee did not discuss these other requirements.

Under a group of annuity contracts, an entity could provide other insurance contract services to policyholders in addition to insurance coverage for survival—for example, insurance coverage for death in a deferral period or an investment-return service. The conclusion in this agenda decision applies to insurance coverage for survival, regardless of other services provided. If the contracts provide other insurance contract services, the entity would also need to consider the pattern of transfer of these services to the policyholder.

The Committee concluded that the principles and requirements in IFRS Accounting Standards provide an adequate basis for an issuer of a group of annuity contracts as described in the request to determine the amount of the contractual service margin to recognise in profit or loss in a period because of the transfer of insurance coverage for survival in that period. Consequently, the Committee decided not to add a standard-setting project to the work plan.]

B119A

To apply

paragraph B119

, the period of investment-return service or investment-related service ends at or before the date that all amounts due to current policyholders relating to those services have been paid, without considering payments to future policyholders included in the fulfilment cash flows applying

paragraph B68

[

Refer:

Basis for Conclusions paragraphs BC283A–BC283F

Illustrative Examples, Example 6 paragraph IE58]

B119B

Insurance contracts without direct participation features may provide an investment-return service if, and only if:

(a)

an investment component exists, or the policyholder has a right to withdraw an amount;

(b)

the entity expects the investment component or amount the policyholder has a right to withdraw to include an investment return (an investment return could be below zero, for example, in a negative interest rate environment); and

(c)

the entity expects to perform investment activity to generate that investment return.

[

Refer:

Basis for Conclusions paragraphs BC283C–BC283E

Illustrative Examples, Example 6 paragraph IE58]

Reinsurance contracts held—recognition of recovery of losses on underlying insurance contracts (

paragraphs 66A−66B

)

[

Refer:

Basis for Conclusions paragraphs BC315A–BC315L

Illustrative Examples, Example 12C]

B119C

Paragraph 66A

applies if, and only if, the reinsurance contract held is entered into before or at the same time as the onerous underlying insurance contracts are recognised.

[

Refer:

Basis for Conclusions paragraph BC315C]

B119D

To apply

paragraph 66A

, an entity shall determine the adjustment to the contractual service margin of a group of reinsurance contracts held and the resulting income by multiplying:

(a)

the loss recognised on the underlying insurance contracts; and

(b)

the percentage of claims on the underlying insurance contracts the entity expects to recover from the group of reinsurance contracts held.

[

Refer:

Basis for Conclusions paragraph BC315A]

B119E

Applying

paragraphs 14‒22

, an entity might include in an onerous group of insurance contracts both onerous insurance contracts covered by a group of reinsurance contracts held and onerous insurance contracts not covered by the group of reinsurance contracts held. To apply

paragraphs 66(c)(i)‒(ii)

and

paragraph 66A

in such cases, the entity shall apply a systematic and rational method of allocation to determine the portion of losses recognised on the group of insurance contracts that relates to insurance contracts covered by the group of reinsurance contracts held.

[

Refer:

Basis for Conclusions paragraphs BC315H and BC315I]

B119F

After an entity has established a loss-recovery component applying

paragraph 66B

, the entity shall adjust the loss-recovery component to reflect changes in the loss component of an onerous group of underlying insurance contracts (see

paragraphs 50–52

). The carrying amount of the loss-recovery component shall not exceed the portion of the carrying amount of the loss component of the onerous group of underlying insurance contracts that the entity expects to recover from the group of reinsurance contracts held.

Insurance revenue (

paragraphs 83

and

)

[

Refer:

Basis for Conclusions paragraphs BC27–BC37

BC61

and

BC331–BC339

Illustrative Examples, Examples 3

and

]

B120

The total insurance revenue for a

group of insurance contracts

is the consideration for the contracts, ie the amount of premiums paid to the entity:

(a)

adjusted for a financing effect; and

(b)

excluding any

investment components

[

Refer:

Basis for Conclusions paragraphs BC33–BC34A

]

[

Refer:

Illustrative Examples:

Example 3A paragraph IE37

Example 3B paragraph IE41

Example 9 paragraph IE112

]

B121

Paragraph 83

requires the amount of insurance revenue recognised in a period to depict the transfer of promised services at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those services. The total consideration for a

group of contracts

covers the following amounts:

(a)

amounts related to the provision of services, comprising:

(i)

insurance service expenses, excluding any amounts relating to the risk adjustment for non-financial risk included in (ii) and any amounts allocated to the loss component of the

liability for remaining coverage

;

(ia)

amounts related to income tax that are specifically chargeable to the policyholder;

(ii)

the

risk adjustment for non-financial risk

, excluding any amounts allocated to the loss component of the liability for remaining coverage; and

(iii)

the

contractual service margin

(b)

amounts related to

insurance acquisition cash flows.

B122

Insurance revenue for a period relating to the amounts described in

paragraph B121(a)

is determined as set out in

paragraphs B123–B124

. Insurance revenue for a period relating to the amounts described in

paragraph B121(b)

is determined as set out in

paragraph B125

B123

Applying

, when an entity provides services, it derecognises the performance obligation for those services and recognises revenue. Consistently, applying IFRS 17, when an entity provides services in a period, it reduces the

liability for remaining coverage

for the services provided and recognises insurance revenue. The reduction in the liability for remaining coverage that gives rise to insurance revenue excludes changes in the liability that do not relate to services expected to be covered by the consideration received by the entity. Those changes are:

(a)

changes that do not relate to services provided in the period, for example:

(i)

changes resulting from cash inflows from premiums received;

(ii)

changes that relate to

investment components

in the period;

(iia)

changes resulting from cash flows from loans to policyholders;

(iii)

changes that relate to transaction-based taxes collected on behalf of third parties (such as premium taxes, value added taxes and goods and services taxes) (see

paragraph B65(i)

);

(iv)

insurance finance income or expenses;

(v)

insurance acquisition cash flows

(see

paragraph B125

); and

(vi)

derecognition of liabilities transferred to a third party.

(b)

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 (see

paragraphs 47–52

[

Refer:

Illustrative Examples:

Example 3A paragraph IE33

Example 3B paragraph IE39

Example 8 paragraph IE96

Example 9 paragraph IE112

]

B123A

To the extent that an entity derecognises an asset for cash flows other than insurance acquisition cash flows at the date of initial recognition of a group of insurance contracts (see

paragraphs 38(c)(ii)

and

B66A

), it shall recognise insurance revenue and expenses for the amount derecognised at that date.

[

Refer:

Basis for Conclusions paragraph BC184N]

B124

Consequently, insurance revenue for the period can also be analysed as the total of the changes in the

liability for remaining coverage

in the period that relates to services for which the entity expects to receive consideration. Those changes are:

(a)

insurance service expenses incurred in the period (measured at the amounts expected at the beginning of the period), excluding:

(i)

amounts allocated to the loss component of the liability for remaining coverage applying

paragraph 51(a)

;

(ii)

repayments of

investment components

;

(iii)

amounts that relate to transaction-based taxes collected on behalf of third parties (such as premium taxes, value added taxes and goods and services taxes) (see

paragraph B65(i)

);

(iv)

insurance acquisition expenses

(see

paragraph B125

); and

(v)

the amount related to the risk adjustment for non-financial risk (see (b)).

(b)

the change in the

risk adjustment for non-financial risk

, excluding:

(i)

changes included in insurance finance income or expenses applying

paragraph 87

;

(ii)

changes that adjust the

contractual service margin

because they relate to future service applying

paragraphs 44(c)

and

45(c)

; and

(iii)

amounts allocated to the loss component of the liability for remaining coverage applying

paragraph 51(b)

(c)

the amount of the contractual service margin recognised in profit or loss in the period, applying

paragraphs 44(e)

and

45(e)

(d)

other amounts, if any, for example, experience adjustments for premium receipts other than those that relate to future service (see

paragraph B96(a)

[

Refer:

Illustrative Examples:

Example 3A paragraph IE33

Example 3B paragraph IE39

Example 8 paragraph IE96

Example 9 paragraph IE112

]

B125

An entity shall determine insurance revenue related to

insurance acquisition cash flows

by allocating the portion of the premiums that relate to recovering those cash flows to each reporting period in a systematic way on the basis of the passage of time. An entity shall recognise the same amount as insurance service expenses.

[

Refer:

Basis for Conclusions paragraphs BC175–BC184K

Illustrative Examples, Example 7 paragraph IE78

]

B126

When an entity applies the premium allocation approach in

paragraphs 55–58

, insurance revenue for the period is the amount of expected premium receipts (excluding any

investment component

and adjusted to reflect the time value of money and the effect of

financial risk

, if applicable, applying

paragraph 56

) allocated to the period. The entity shall allocate the expected premium receipts to each period of insurance contract services:

(a)

on the basis of the passage of time; but

(b)

if the expected pattern of release of risk during the

coverage period

differs significantly from the passage of time, then on the basis of the expected timing of incurred insurance service expenses.

[

Refer:

Illustrative Examples, Example 10 paragraph IE123

]

B127

An entity shall change the basis of allocation between

paragraphs B126(a)

and

B126(b)

as necessary if facts and circumstances change.

Insurance finance income or expenses (

paragraphs 87–92

)

[

Refer:

Basis for Conclusions paragraphs BC38–BC49

BC62

and

BC340–BC342C

]

B128

Paragraph 87

requires an entity to include in insurance finance income or expenses the effect of the time value of money and

financial risk

and changes therein. For the purposes of IFRS 17:

(a)

assumptions about inflation based on an index of prices or rates or on prices of assets with inflation-linked returns are assumptions that relate to financial risk;

[

Refer:

Basis for Conclusions paragraphs BC39 and BC40]

(b)

assumptions about inflation based on an entity’s expectation of specific price changes are not assumptions that relate to financial risk; and

[

Refer:

Basis for Conclusions paragraphs BC39 and BC40]

(c)

changes in the measurement of a group of insurance contracts caused by changes in the value of underlying items (excluding additions and withdrawals) are changes arising from the effect of the time value of money and financial risk and changes therein.

[

Refer:

Basis for Conclusions paragraph BC342A]

B129

Paragraphs 88–89

require an entity to make an accounting policy choice as to whether to disaggregate insurance finance income or expenses for the period between profit or loss and other comprehensive income. An entity shall apply its choice of accounting policy to

portfolios of insurance contracts

. In assessing the appropriate accounting policy for a portfolio of insurance contracts, applying

paragraph 13 of IAS 8

Basis of Preparation of Financial Statements

, the entity shall consider for each portfolio the assets that the entity holds and how it accounts for those assets.

[

Refer:

Basis for Conclusions paragraphs BC44

]

B130

paragraph 88(b)

applies, an entity shall include in profit or loss an amount determined by a systematic allocation of the expected total finance income or expenses over the duration of the

group of insurance contracts

. In this context, a systematic allocation is an allocation of the total expected finance income or expenses of a group of insurance contracts over the duration of the group that:

[

Refer:

Basis for Conclusions paragraphs BC46–BC49

]

(a)

is based on characteristics of the contracts, without reference to factors that do not affect the cash flows expected to arise under the contracts. For example, the allocation of the finance income or expenses shall not be based on expected recognised returns on assets if those expected recognised returns do not affect the cash flows of the contracts in the group.

(b)

results in the amounts recognised in other comprehensive income over the duration of the group of contracts totalling zero. The cumulative amount recognised in other comprehensive income at any date is the difference between the carrying amount of the group of contracts and the amount that the group would be measured at when applying the systematic allocation.

[

Refer:

Illustrative Examples, Example 15

]

B131

For

groups of insurance contracts

for which changes in assumptions that relate to

financial risk

do not have a substantial effect on the amounts paid to the

policyholder

, the systematic allocation is determined using the discount rates specified in

paragraph B72(e)(i)

B132

For

groups of insurance contracts

for which changes in assumptions that relate to

financial risk

have a substantial effect on the amounts paid to the

policyholders

(a)

a systematic allocation for the finance income or expenses arising from the estimates of future cash flows can be determined in one of the following ways:

(i)

using a rate that allocates the remaining revised expected finance income or expenses over the remaining duration of the group of contracts at a constant rate; or

[

Refer:

Illustrative Examples, Example 15A

]

(ii)

for contracts that use a crediting rate to determine amounts due to the policyholders—using an allocation that is based on the amounts credited in the period and expected to be credited in future periods.

[

Refer:

Illustrative Examples, Example 15B

]

(b)

a systematic allocation for the finance income or expenses arising from the

risk adjustment for non-financial risk

, if separately disaggregated from other changes in the risk adjustment for non-financial risk applying

paragraph 81

, is determined using an allocation consistent with that used for the allocation for the finance income or expenses arising from the future cash flows.

(c)

a systematic allocation for the finance income or expenses arising from the

contractual service margin

is determined:

(i)

for

insurance contracts that do not have direct participation features

, using the discount rates specified in

paragraph B72(b)

; and

(ii)

for

insurance contracts with direct participation features

, using an allocation consistent with that used for the allocation for the finance income or expenses arising from the future cash flows.

B133

In applying the premium allocation approach to

insurance contracts

described in

paragraphs 53–59

, an entity may be required, or may choose, to discount the

liability for incurred claims

. In such cases, it may choose to disaggregate the insurance finance income or expenses applying

paragraph 88(b)

. If the entity makes this choice, it shall determine the insurance finance income or expenses in profit or loss using the discount rate specified in

paragraph B72(e)(iii)

[

Refer:

Basis for Conclusions paragraph BC295

]

B134

Paragraph 89

applies if an entity, either by choice or because it is required to, holds the

underlying items

for

insurance contracts with direct participation features

. If an entity chooses to disaggregate insurance finance income or expenses applying

paragraph 89(b)

, it shall include in profit or loss expenses or income that exactly match the income or expenses included in profit or loss for the underlying items, resulting in the net of the separately presented items being nil.

[

Refer:

Basis for Conclusions paragraph BC48

]

[

Refer:

Illustrative Examples, Example 16

]

B135

An entity may qualify for the accounting policy choice in

paragraph 89

in some periods but not in others because of a change in whether it holds the

underlying items

. If such a change occurs, the accounting policy choice available to the entity changes from that set out in

paragraph 88

to that set out in paragraph 89, or vice versa. Hence, an entity might change its accounting policy between that set out in

paragraph 88(b)

and that set out in

paragraph 89(b)

. In making such a change an entity shall:

(a)

include the accumulated amount previously included in other comprehensive income by the date of the change as a reclassification adjustment in profit or loss in the period of change and in future periods, as follows:

(i)

if the entity had previously applied paragraph 88(b)—the entity shall include in profit or loss the accumulated amount included in other comprehensive income before the change as if the entity were continuing the approach in paragraph 88(b) based on the assumptions that applied immediately before the change; and

(ii)

if the entity had previously applied paragraph 89(b)—the entity shall include in profit or loss the accumulated amount included in other comprehensive income before the change as if the entity were continuing the approach in paragraph 89(b) based on the assumptions that applied immediately before the change.

(b)

not restate prior period comparative information.

B136

When applying

paragraph B135(a)

, an entity shall not recalculate the accumulated amount previously included in other comprehensive income as if the new disaggregation had always applied; and the assumptions used for the reclassification in future periods shall not be updated after the date of the change.

The effect of accounting estimates made in interim financial statements

B137

If an entity prepares interim financial statements applying

IAS 34

Interim Financial Reporting

, the entity shall make an accounting policy choice as to whether to change the treatment of accounting estimates made in previous interim financial statements when applying IFRS 17 in subsequent interim financial statements and in the annual reporting period. The entity shall apply its choice of accounting policy to all groups of insurance contracts it issues and groups of reinsurance contracts it holds.

[

Refer:

Basis for Conclusions paragraphs BC236–BC236D

]

Appendix C

Effective date and transition

[

Refer:

Basis for Conclusions paragraphs BC372–BC407

]

This appendix is an integral part of IFRS 17

Insurance Contracts.

Effective date

An entity shall apply IFRS 17 for annual reporting periods beginning on or after 1 January 2023.

[

Refer:

Basis for Conclusions paragraphs BC402–BC404F

]

If an entity applies IFRS 17 earlier, it shall disclose that fact. Early application is permitted for entities that apply

Financial Instruments

on or before the date of initial application of IFRS 17.

[

Refer:

Basis for Conclusions paragraphs BC405 and BC406

]

For the purposes of the transition requirements in

paragraphs C1

and

C3–C33

(a)

the date of initial application is the beginning of the annual reporting period in which an entity first applies IFRS 17; and

(b)

the transition date is the beginning of the annual reporting period immediately preceding the date of initial application.

C2A

Initial Application of IFRS 17 and IFRS 9—Comparative Information

, issued in December 2021, added paragraphs C28A–C28E and C33A. An entity that chooses to apply paragraphs C28A–C28E and C33A shall apply them on initial application of IFRS 17.

C2B

Presentation and Disclosure in Financial Statements

issued in April 2024 amended

paragraphs 91

103

and

B129

. An entity shall apply those amendments when it applies

Transition

Unless it is impracticable to do so, or

paragraph C5A

applies, an entity shall apply IFRS 17 retrospectively, except that:

(a)

an entity is not required to present the quantitative information required by

paragraph 28(f) of IAS 8

Accounting Policies, Changes in Accounting Estimates and Errors

or, for entities applying

IFRS 19

Subsidiaries without Public Accountability: Disclosures

, by

paragraph 178(f) of

IFRS 19

;

[

Refer:

Basis for Conclusions paragraph BC400

]

and

(b)

an entity shall not apply the option in

paragraph B115

for periods before the transition date. An entity may apply the option in paragraph B115 prospectively on or after the transition date if, and only if, the entity designates risk mitigation relationships at or before the date it applies the option.

[

Refer:

Basis for Conclusions paragraphs BC393

and BC393A(a)]

To apply IFRS 17 retrospectively, an entity shall at the transition date:

(a)

identify, recognise and measure each

group of insurance contracts

as if IFRS 17 had always applied;

[

Refer:

Basis for Conclusions paragraph BC390

]

(aa)

identify, recognise and measure any assets for insurance acquisition cash flows as if IFRS 17 had always applied (except that an entity is not required to apply the recoverability assessment in

paragraph 28E

before the transition date);

(b)

derecognise any existing balances that would not exist had IFRS 17 always applied; and

(c)

recognise any resulting net difference in equity.

[

Refer:

Basis for Conclusions paragraphs BC374–BC378

]

If, and only if, it is impracticable for an entity to apply

paragraph C3

for a

group of insurance contracts

, an entity shall apply the following approaches instead of applying

paragraph C4(a)

(a)

the modified retrospective approach in

paragraphs C6–C19A

, subject to

paragraph C6(a)

; or

(b)

the fair value approach in

paragraphs C20–C24B

[

Refer:

Basis for Conclusions paragraphs BC373–BC373B

]

C5A

Notwithstanding

paragraph C5

, an entity may choose to apply the fair value approach in

paragraphs C20–C24B

for a group of insurance contracts with direct participation features to which it could apply IFRS 17 retrospectively if, and only if:

(a)

the entity chooses to apply the risk mitigation option in paragraph B115 to the group of insurance contracts prospectively from the transition date; and

(b)

the entity has used derivatives, non-derivative financial instruments measured at fair value through profit or loss, or reinsurance contracts held to mitigate financial risk arising from the group of insurance contracts, as specified in

paragraph B115

, before the transition date.

[

Refer:

Basis for Conclusions paragraphs BC393A–BC393E]

C5B

If, and only if, it is impracticable for an entity to apply

paragraph C4(aa)

for an asset for insurance acquisition cash flows, the entity shall apply the following approaches to measure the asset for insurance acquisition cash flows:

(a)

the modified retrospective approach in

paragraphs C14B–C14D

and

C17A

, subject to

paragraph C6(a)

; or

(b)

the fair value approach in

paragraphs C24A–C24B

Modified retrospective approach

[

Refer:

Basis for Conclusions paragraphs BC379–BC384B

]

The objective of the modified retrospective approach is to achieve the closest outcome to retrospective application possible using reasonable and supportable information available without undue cost or effort. Accordingly, in applying this approach, an entity shall:

(a)

use reasonable and supportable information. If the entity cannot obtain reasonable and supportable information necessary to apply the modified retrospective approach, it shall apply the fair value approach.

(b)

maximise the use of information that would have been used to apply a fully retrospective approach, but need only use information available without undue cost or effort.

[

Refer:

Basis for Conclusions paragraphs BC380A–BC380D]

Paragraphs C9–C19A

set out permitted modifications to retrospective application in the following areas:

(a)

assessments of

insurance contracts

groups of insurance contracts

that would have been made at the date of inception or initial recognition;

(b)

amounts related to the

contractual service margin

or loss component for

insurance contracts without direct participation features

;

(c)

amounts related to the contractual service margin or loss component for

insurance contracts with direct participation features

; and

(d)

insurance finance income or expenses.

To achieve the objective of the modified retrospective approach, an entity is permitted to use each modification in

paragraphs C9–C19A

only to the extent that an entity does not have reasonable and supportable information to apply a retrospective approach.

Assessments at inception or initial recognition

[

Refer:

Basis for Conclusions paragraphs BC381–BC382B

and

BC390–BC392A

]

To the extent permitted by

paragraph C8

, an entity shall determine the following matters using information available at the transition date:

(a)

how to identify

groups of insurance contracts

, applying

paragraphs 14–24

;

[

Refer:

Basis for Conclusions paragraphs BC391–BC392A]

(b)

whether an

insurance contract

meets the definition of an

insurance contract with direct participation features

, applying

paragraphs B101–B109

;

(c)

how to identify discretionary cash flows for

insurance contracts without direct participation features

, applying

paragraphs B98–B100

; and

(d)

whether an investment contract meets the definition of an investment contract with discretionary participation features within the scope of IFRS 17, applying

paragraph 71

C9A

To the extent permitted by

paragraph C8

, an entity shall classify as a liability for incurred claims a liability for settlement of claims incurred before an insurance contract was acquired in a transfer of insurance contracts that do not form a business or in a business combination within the

scope of

IFRS 3

[

Refer:

Basis for Conclusions paragraphs BC382A–BC382B]

C10

To the extent permitted by

paragraph C8

, an entity shall not apply

paragraph 22

to divide groups into those that do not include contracts issued more than one year apart.

[

Refer:

Basis for Conclusions paragraphs BC391 and BC392A

]

Determining the

contractual service margin

or loss component for groups of

insurance contracts without direct participation features

[

Refer:

Basis for Conclusions paragraph BC383

Illustrative Examples, Example 17

]

C11

To the extent permitted by

paragraph C8

, for contracts without direct participation features, an entity shall determine the

contractual service margin

or loss component of the

liability for remaining coverage

(see

paragraphs 49–52

) at the transition date by applying

paragraphs C12–C16C

C12

To the extent permitted by

paragraph C8

, an entity shall estimate the future cash flows at the date of initial recognition of a

group of insurance contract

s as the amount of the future cash flows at the transition date (or earlier date, if the future cash flows at that earlier date can be determined retrospectively, applying

paragraph C4(a)

), adjusted by the cash flows that are known to have occurred between the date of initial recognition of a group of insurance contracts and the transition date (or earlier date). The cash flows that are known to have occurred include cash flows resulting from contracts that ceased to exist before the transition date.

C13

To the extent permitted by

paragraph C8

, an entity shall determine the discount rates that applied at the date of initial recognition of a

group of insurance contracts

(or subsequently):

(a)

using an observable yield curve that, for at least three years immediately before the transition date, approximates the yield curve estimated applying

paragraphs 36

and

B72–B85

, if such an observable yield curve exists.

(b)

if the observable yield curve in paragraph (a) does not exist, estimate the discount rates that applied at the date of initial recognition (or subsequently) by determining an average spread between an observable yield curve and the yield curve estimated applying

paragraphs 36

and

B72–B85

, and applying that spread to that observable yield curve. That spread shall be an average over at least three years immediately before the transition date.

C14

To the extent permitted by

paragraph C8

, an entity shall determine the

risk adjustment for non-financial risk

at the date of initial recognition of a

group of insurance contracts

(or subsequently) by adjusting the risk adjustment for non-financial risk at the transition date by the expected release of risk before the transition date. The expected release of risk shall be determined by reference to the release of risk for similar

insurance contracts

that the entity issues at the transition date.

C14A

Applying

paragraph B137

, an entity may choose not to change the treatment of accounting estimates made in previous interim financial statements. To the extent permitted by

paragraph C8

, such an entity shall determine the contractual service margin or loss component at the transition date as if the entity had not prepared interim financial statements before the transition date.

[

Refer:

Basis for Conclusions paragraph BC236D]

C14B

To the extent permitted by

paragraph C8

, an entity shall use the same systematic and rational method the entity expects to use after the transition date when applying

paragraph 28A

to allocate any insurance acquisition cash flows paid (or for which a liability has been recognised applying another IFRS Standard) before the transition date (excluding any amount relating to insurance contracts that ceased to exist before the transition date) to:

(a)

groups of insurance contracts that are recognised at the transition date; and

(b)

groups of insurance contracts that are expected to be recognised after the transition date.

C14C

Insurance acquisition cash flows paid before the transition date that are allocated to a group of insurance contracts recognised at the transition date adjust the contractual service margin of that group, to the extent insurance contracts expected to be in the group have been recognised at that date (see

paragraphs 28C

and

B35C

). Other insurance acquisition cash flows paid before the transition date, including those allocated to a group of insurance contracts expected to be recognised after the transition date, are recognised as an asset, applying

paragraph 28B

C14D

If an entity does not have reasonable and supportable information to apply

paragraph C14B

, the entity shall determine the following amounts to be nil at the transition date:

(a)

the adjustment to the contractual service margin of a group of insurance contracts recognised at the transition date and any asset for insurance acquisition cash flows relating to that group; and

(b)

the asset for insurance acquisition cash flows for groups of insurance contracts expected to be recognised after the transition date.

C15

If applying

paragraphs C12–C14D

results in a

contractual service margin

at the date of initial recognition, to determine the contractual service margin at the date of transition an entity shall:

(a)

if the entity applies

C13

to estimate the discount rates that apply on initial recognition, use those rates to accrete interest on the contractual service margin; and

(b)

to the extent permitted by

paragraph C8

, determine the amount of the contractual service margin recognised in profit or loss because of the transfer of services before the transition date, by comparing the remaining coverage units at that date with the coverage units provided under the

group of contracts

before the transition date (see

paragraph B119

C16

If applying

paragraphs C12–C14D

results in a loss component of the

liability for remaining coverage

at the date of initial recognition, an entity shall determine any amounts allocated to the loss component before the transition date applying paragraphs C12–C14D and using a systematic basis of allocation.

C16A

For a group of reinsurance contracts held that provides coverage for an onerous group of insurance contracts and was entered into before or at the same time that the insurance contracts were issued, an entity shall establish a loss-recovery component of the asset for remaining coverage at the transition date (see

paragraphs 66A–66B

[

Refer:

Basis for Conclusions paragraphs BC315A and BC315D]

To the extent permitted by

paragraph C8

, an entity shall determine the loss-recovery component by multiplying:

(a)

the loss component of the liability for remaining coverage for the underlying insurance contracts at the transition date (see

paragraphs C16

and

C20

); and

(b)

the percentage of claims for the underlying insurance contracts the entity expects to recover from the group of reinsurance contracts held.

C16B

Applying

paragraphs 14‒22

, at the transition date an entity might include in an onerous group of insurance contracts both onerous insurance contracts covered by a group of reinsurance contracts held and onerous insurance contracts not covered by the group of reinsurance contracts held. To apply

paragraph C16A

in such cases, an entity shall use a systematic and rational basis of allocation to determine the portion of the loss component of the group of insurance contracts that relates to insurance contracts covered by the group of reinsurance contracts held.

C16C

If an entity does not have reasonable and supportable information to apply

paragraph C16A

, the entity shall not identify a loss-recovery component for the group of reinsurance contracts held.

Determining the

contractual service margin

or loss component for groups of

insurance contracts with direct participation features

[

Refer:

Basis for Conclusions paragraphs BC383–BC383B

Illustrative Examples, Example 18

]

C17

To the extent permitted by

paragraph C8

, for contracts with direct participation features an entity shall determine the

contractual service margin

or loss component of the

liability for remaining coverage

at the transition date as:

(a)

the total fair value of the

underlying items

at that date; minus

(b)

the

fulfilment cash flows

at that date; plus or minus

(c)

an adjustment for:

(i)

amounts charged by the entity to the

policyholders

(including amounts deducted from the underlying items) before that date.

(ii)

amounts paid before that date that would not have varied based on the underlying items.

(iii)

the change in the

risk adjustment for non-financial risk

caused by the release from risk before that date. The entity shall estimate this amount by reference to the release of risk for similar

insurance contracts

that the entity issues at the transition date.

(iv)

insurance acquisition cash flows paid (or for which a liability has been recognised applying another IFRS Standard) before the transition date that are allocated to the group (see

paragraph C17A

(d)

if (a)–(c) result in a contractual service margin—minus the amount of the contractual service margin that relates to services provided before that date. The total of (a)–(c) is a proxy for the total contractual service margin for all services to be provided under the

group of contracts

, ie before any amounts that would have been recognised in profit or loss for services provided. The entity shall estimate the amounts that would have been recognised in profit or loss for services provided by comparing the remaining coverage units at the transition date with the coverage units provided under the group of contracts before the transition date; or

(e)

if (a)–(c) result in a loss component—adjust the loss component to nil and increase the liability for remaining coverage excluding the loss component by the same amount.

C17A

To the extent permitted by

paragraph C8

, an entity shall apply

paragraphs C14B‒C14D

to recognise an asset for insurance acquisition cash flows, and any adjustment to the contractual service margin of a group of insurance contracts with direct participation features for insurance acquisition cash flows (see

paragraph C17(c)(iv)

Insurance finance income or expenses

[

Refer:

Basis for Conclusions paragraphs BC384–BC384B

]

C18

For

groups of insurance contracts

that, applying

paragraph C10

, include contracts issued more than one year apart:

(a)

an entity is permitted to determine the discount rates at the date of initial recognition of a group specified in

paragraphs B72(b)–B72(e)(ii)

and the discount rates at the date of the incurred claim specified in

paragraph B72(e)(iii)

at the transition date instead of at the date of initial recognition or incurred claim.

(b)

if an entity chooses to disaggregate insurance finance income or expenses between amounts included in profit or loss and amounts included in other comprehensive income applying

paragraphs 88(b)

89(b)

, the entity needs to determine the cumulative amount of insurance finance income or expenses recognised in other comprehensive income at the transition date to apply

paragraph 91(a)

in future periods. The entity is permitted to determine that cumulative amount either by applying

paragraph C19(b)

or:

(i)

as nil, unless (ii) applies; and

(ii)

for

insurance contracts with direct participation features

to which

paragraph B134

applies, as equal to the cumulative amount recognised in other comprehensive income on the underlying items.

C19

For

groups of insurance contracts

that do not include contracts issued more than one year apart:

(a)

if an entity applies

paragraph C13

to estimate the discount rates that applied at initial recognition (or subsequently), it shall also determine the discount rates specified in

paragraphs B72(b)–B72(e)

applying paragraph C13; and

(b)

if an entity chooses to disaggregate insurance finance income or expenses between amounts included in profit or loss and amounts included in other comprehensive income, applying

paragraphs 88(b)

89(b)

, the entity needs to determine the cumulative amount of insurance finance income or expenses recognised in other comprehensive income at the transition date to apply

paragraph 91(a)

in future periods. The entity shall determine that cumulative amount:

(i)

for

insurance contracts

for which an entity will apply the methods of systematic allocation set out in

paragraph B131

—if the entity applies paragraph C13 to estimate the discount rates at initial recognition—using the discount rates that applied at the date of initial recognition, also applying paragraph C13;

(ii)

for insurance contracts for which an entity will apply the methods of systematic allocation set out in

paragraph B132

—on the basis that the assumptions that relate to

financial risk

that applied at the date of initial recognition are those that apply on the transition date, ie as nil;

(iii)

for insurance contracts for which an entity will apply the methods of systematic allocation set out in

paragraph B133

—if the entity applies paragraph C13 to estimate the discount rates at initial recognition (or subsequently)—using the discount rates that applied at the date of the incurred claim, also applying paragraph C13; and

(iv)

for

insurance contracts with direct participation features

to which

paragraph B134

applies—as equal to the cumulative amount recognised in other comprehensive income on the

underlying items

C19A

Applying

paragraph B137

, an entity may choose not to change the treatment of accounting estimates made in previous interim financial statements. To the extent permitted by

paragraph C8

, such an entity shall determine amounts related to insurance finance income or expenses at the transition date as if it had not prepared interim financial statements before the transition date.

[

Refer:

Basis for Conclusions paragraph BC236D]

Fair value approach

[

Refer:

Basis for Conclusions paragraphs BC385 and BC386

]

C20

To apply the fair value approach, an entity shall determine the

contractual service margin

or loss component of the

liability for remaining coverage

at the transition date as the difference between the fair value of a

group of insurance contracts

at that date and the

fulfilment cash flow

s measured at that date. In determining that fair value, an entity shall not apply

paragraph 47 of

IFRS 13

Fair Value Measurement

(relating to demand features).

C20A

For a group of reinsurance contracts held to which

paragraphs 66A–66B

apply (without the need to meet the condition set out in

paragraph B119C

), an entity shall determine the loss-recovery component of the asset for remaining coverage at the transition date by multiplying:

(a)

the loss component of the liability for remaining coverage for the underlying insurance contracts at the transition date (see

paragraphs C16

and

C20

); and

(b)

the percentage of claims for the underlying insurance contracts the entity expects to recover from the group of reinsurance contracts held.

C20B

Applying

paragraphs 14‒22

paragraph C20A

C21

In applying the fair value approach, an entity may apply

paragraph C22

to determine:

(a)

how to identify

groups of insurance contracts

, applying

paragraphs 14–24

;

(b)

whether an

insurance contract

meets the definition of an

insurance contract with direct participation features

, applying

paragraphs B101–B109

;

(c)

how to identify discretionary cash flows for

insurance contracts without direct participation features

, applying

paragraphs B98–B100

; and

(d)

whether an investment contract meets the definition of an investment contract with discretionary participation features within the scope of IFRS 17, applying

paragraph 71

C22

An entity may choose to determine the matters in

paragraph C21

using:

(a)

reasonable and supportable information for what the entity would have determined given the terms of the contract and the market conditions at the date of inception or initial recognition, as appropriate; or

(b)

reasonable and supportable information available at the transition date.

C22A

In applying the fair value approach, an entity may choose to classify as a liability for incurred claims a liability for settlement of claims incurred before an insurance contract was acquired in a transfer of insurance contracts that do not form a business or in a business combination within the

scope of IFRS 3

[

Refer:

Basis for Conclusions paragraph BC382A]

C23

In applying the fair value approach, an entity is not required to apply

paragraph 22

, and may include in a group contracts issued more than one year apart. An entity shall only divide groups into those including only contracts issued within a year (or less) if it has reasonable and supportable information to make the division. Whether or not an entity applies paragraph 22, it is permitted to determine the discount rates at the date of initial recognition of a group specified in

paragraphs B72(b)–B72(e)(ii)

and the discount rates at the date of the incurred claim specified in

paragraph B72(e)(iii)

at the transition date instead of at the date of initial recognition or incurred claim.

C24

In applying the fair value approach, if an entity chooses to disaggregate insurance finance income or expenses between profit or loss and other comprehensive income, it is permitted to determine the cumulative amount of insurance finance income or expenses recognised in other comprehensive income at the transition date:

(a)

retrospectively—but only if it has reasonable and supportable information to do so; or

(b)

as nil—unless (c) applies; and

(c)

for

insurance contracts with direct participation features

to which

paragraph B134

applies—as equal to the cumulative amount recognised in other comprehensive income from the

underlying items

Asset for insurance acquisition cash flows

C24A

In applying the fair value approach for an asset for insurance acquisition cash flows (see

paragraph C5B(b)

), at the transition date, an entity shall determine an asset for insurance acquisition cash flows at an amount equal to the insurance acquisition cash flows the entity would incur at the transition date for the rights to obtain:

(a)

recoveries of insurance acquisition cash flows from premiums of insurance contracts issued before the transition date but not recognised at the transition date;

(b)

future insurance contracts that are renewals of insurance contracts recognised at the transition date and insurance contracts described in (a); and

(c)

future insurance contracts, other than those in (b), after the transition date without paying again insurance acquisition cash flows the entity has already paid that are directly attributable to the related portfolio of insurance contracts.

C24B

At the transition date, the entity shall exclude from the measurement of any groups of insurance contracts the amount of any asset for insurance acquisition cash flows.

Comparative information

[

Refer:

Basis for Conclusions paragraphs BC387–BC389A

]

C25

Notwithstanding the reference to the annual reporting period immediately preceding the date of initial application in

paragraph C2(b)

, an entity may also present adjusted comparative information applying IFRS 17 for any earlier periods presented, but is not required to do so. If an entity does present adjusted comparative information for any earlier periods, the reference to ‘the beginning of the annual reporting period immediately preceding the date of initial application’ in paragraph C2(b) shall be read as ‘the beginning of the earliest adjusted comparative period presented’.

C26

An entity is not required to provide the disclosures specified in

paragraphs 93–132

for any period presented before the beginning of the annual reporting period immediately preceding the date of initial application.

C27

If an entity presents unadjusted comparative information and disclosures for any earlier periods, it shall clearly identify the information that has not been adjusted, disclose that it has been prepared on a different basis, and explain that basis.

C28

An entity need not disclose previously unpublished information about claims development that occurred earlier than five years before the end of the annual reporting period in which it first applies IFRS 17. However, if an entity does not disclose that information, it shall disclose that fact.

[

Refer:

Basis for Conclusions paragraph BC401

]

Entities that first apply IFRS 17 and IFRS 9 at the same time

[

Refer:

Basis for Conclusions

paragraphs BC398G–BC398R

]

C28A

An entity that first applies IFRS 17 and

at the same time is permitted to apply paragraphs C28B–C28E (classification overlay) for the purpose of presenting comparative information about a financial asset if the comparative information for that financial asset has not been restated for IFRS 9. Comparative information for a financial asset will not be restated for IFRS 9 if either the entity chooses not to restate prior periods (see

paragraph 7.2.15 of IFRS 9

), or the entity restates prior periods but the financial asset has been derecognised during those prior periods (see

paragraph 7.2.1 of IFRS 9

C28B

An entity applying the classification overlay to a financial asset shall present comparative information as if the classification and measurement requirements of

had been applied to that financial asset. The entity shall use reasonable and supportable information available at the transition date (see

paragraph C2(b)

) to determine how the entity expects the financial asset would be classified and measured on initial application of IFRS 9 (for example, an entity might use preliminary assessments performed to prepare for the initial application of IFRS 9).

C28C

In applying the classification overlay to a financial asset, an entity is not required to apply the impairment requirements in

Section 5.5 of IFRS 9

. If, based on the classification determined applying

paragraph C28B

, the financial asset would be subject to the impairment requirements in Section 5.5 of IFRS 9 but the entity does not apply those requirements in applying the classification overlay, the entity shall continue to present any amount recognised in respect of impairment in the prior period in accordance with

IAS 39

Financial Instruments: Recognition and Measurement

. Otherwise, any such amounts shall be reversed.

C28D

Any difference between the previous carrying amount of a financial asset and the carrying amount at the transition date that results from applying

paragraphs C28B–C28C

shall be recognised in opening retained earnings (or other component of equity, as appropriate) at the transition date.

C28E

An entity that applies

paragraphs C28B–C28D

shall:

(a)

disclose qualitative information that enables users of financial statements to understand:

(i)

the extent to which the classification overlay has been applied (for example, whether it has been applied to all financial assets derecognised in the comparative period);

(ii)

whether and to what extent the impairment requirements in

Section 5.5 of IFRS 9

have been applied (see

paragraph C28C

);

(b)

only apply those paragraphs to comparative information for reporting periods between the transition date to IFRS 17 and the date of initial application of IFRS 17 (see

paragraphs C2

and

C25

); and

(c)

at the date of initial application of

, apply the transition requirements in IFRS 9 (see

Section 7.2 of IFRS 9

Redesignation of financial assets

[

Refer:

Basis for Conclusions paragraphs BC394–BC398B

]

C29

At the date of initial application of IFRS 17, an entity that had applied

to annual reporting periods before the initial application of IFRS 17:

(a)

may reassess whether an eligible financial asset meets the condition in

paragraph 4.1.2(a)

paragraph 4.1.2A(a) of IFRS 9

. A financial asset is eligible only if the financial asset is not held in respect of an activity that is unconnected with contracts within the

scope of IFRS 17

. Examples of financial assets that would not be eligible for reassessment are financial assets held in respect of banking activities or financial assets held in funds relating to investment contracts that are outside the scope of IFRS 17.

(b)

shall revoke its previous designation of a financial asset as measured at fair value through profit or loss if the condition in

paragraph 4.1.5 of IFRS 9

is no longer met because of the application of IFRS 17.

(c)

may designate a financial asset as measured at fair value through profit or loss if the condition in paragraph 4.1.5 of IFRS 9 is met.

(d)

may designate an investment in an equity instrument as at fair value through other comprehensive income applying

paragraph 5.7.5 of IFRS 9

(e)

may revoke its previous designation of an investment in an equity instrument as at fair value through other comprehensive income applying paragraph 5.7.5 of IFRS 9.

C30

An entity shall apply

paragraph C29

on the basis of the facts and circumstances that exist at the date of initial application of IFRS 17. An entity shall apply those designations and classifications retrospectively. In doing so, the entity shall apply the relevant transition requirements in

. The date of initial application for that purpose shall be deemed to be the date of initial application of IFRS 17.

C31

An entity that applies

paragraph C29

is not required to restate prior periods to reflect such changes in designations or classifications. The entity may restate prior periods only if it is possible without the use of hindsight. If an entity restates prior periods, the restated financial statements must reflect all the requirements of

for those affected financial assets. If an entity does not restate prior periods, the entity shall recognise, in the opening retained earnings (or other component of equity, as appropriate) at the date of initial application, any difference between:

(a)

the previous carrying amount of those financial assets; and

(b)

the carrying amount of those financial assets at the date of initial application.

C32

When an entity applies

paragraph C29

, it shall disclose in that annual reporting period for those financial assets by class:

(a)

paragraph C29(a)

applies—its basis for determining eligible financial assets;

(b)

if any of

paragraphs C29(a)–C29(e)

apply:

(i)

the measurement category and carrying amount of the affected financial assets determined immediately before the date of initial application of IFRS 17; and

(ii)

the new measurement category and carrying amount of the affected financial assets determined after applying paragraph C29.

(c)

paragraph C29(b)

applies—the carrying amount of financial assets in the statement of financial position that were previously designated as measured at fair value through profit or loss applying

paragraph 4.1.5 of IFRS 9

that are no longer so designated.

C33

When an entity applies

paragraph C29

, the entity shall disclose in that annual reporting period qualitative information that would enable users of financial statements to understand:

(a)

how it applied paragraph C29 to financial assets the classification of which has changed on initially applying IFRS 17;

(b)

the reasons for any designation or de-designation of financial assets as measured at fair value through profit or loss applying

paragraph 4.1.5 of IFRS 9

; and

(c)

why the entity came to any different conclusions in the new assessment applying

paragraphs 4.1.2(a)

4.1.2A(a) of IFRS 9

C33A

For a financial asset derecognised between the transition date and date of initial application of IFRS 17, an entity may apply

paragraphs C28B–C28E

(classification overlay) for the purpose of presenting comparative information as if

paragraph C29

had been applied to that asset. Such an entity shall adapt the requirements of paragraphs C28B–C28E so that the classification overlay is based on how the entity expects the financial asset would be designated applying paragraph C29 at the date of initial application of IFRS 17.

[

Refer:

Basis for Conclusions paragraphs BC398H(c)

]

Withdrawal of other IFRS Standards

C34

IFRS 17 supersedes

IFRS 4

Insurance Contracts

, as amended in 2020.

Appendix D

Amendments to other IFRS Standards

This Appendix describes the amendments to other Standards that the IASB made when it issued IFRS 17 in 2017 and amended IFRS 17 in 2020. An entity shall apply the amendments for annual periods beginning on or after 1 January 2023. If an entity applies IFRS 17 for an earlier period, these amendments shall be applied for that earlier period.

* * * * *

The amendments contained in this appendix when this Standard was issued in 2017 and amended in 2020 have been incorporated into the text of the relevant Standards included in this volume.

Board Approvals

Approval by the International Accounting Standards Board of IFRS 17

Insurance Contracts

issued in May 2017

Insurance Contracts

was approved for issue by 11 of the 12 members of the International Accounting Standards Board as at March 2017. Ms Flores abstained from voting in view of her recent appointment to the Board.

Hans Hoogervorst

Chairman

Suzanne Lloyd

Vice-Chair

Stephen Cooper

Martin Edelmann

Françoise Flores

Amaro Luiz de Oliveira Gomes

Gary Kabureck

Takatsugu Ochi

Darrel Scott

Chungwoo Suh

Mary Tokar

Wei-Guo Zhang

Approval by the International Accounting Standards Board of

Amendments to IFRS 17

issued in June 2020

Amendments to IFRS 17

was approved for issue by all 14 members of the International Accounting Standards Board.

Hans Hoogervorst

Chairman

Suzanne Lloyd

Vice-Chair

Nick Anderson

Tadeu Cendon

Martin Edelmann

Françoise Flores

Gary Kabureck

Jianqiao Lu

Darrel Scott

Thomas Scott

Chungwoo Suh

Rika Suzuki

Ann Tarca

Mary Tokar

Approval by the Board of

Initial Application of IFRS 17 and IFRS 9—Comparative Information

issued in December 2021

Initial Application of IFRS 17 and IFRS 9—Comparative Information

, which amends

Insurance Contracts

, was approved for issue by all 12 members of the International Accounting Standards Board.

Andreas Barckow

Chair

Suzanne Lloyd

Vice-Chair

Nick Anderson

Tadeu Cendon

Zach Gast

Jianqiao Lu

Bruce Mackenzie

Bertrand Perrin

Thomas Scott

Rika Suzuki

Ann Tarca

Mary Tokar

Footnotes

CU denotes currency unit.

(back)

When it issued

Presentation and Disclosure in Financial Statements

in April 2024, the IASB changed the title of