Monday, January 22, 2018 05:30PM / PwC Nigeria
IFRS 17 was
released in May 2017 and it is quite a complex standard. The standard replaces
IFRS 4 (Insurance Contracts) – an interim standard – which does not
particularly prescribe a measurement policy for insurance contracts. If you
take a look at various insurance contracts around the world, you would find
that they are accounted for using different measurement frameworks.
new standard does is that it tries to achieve a consistent insurance accounting
framework, which inevitably means that there are a lot of changes for everyone
who issue insurance contracts. This newsletter highlights the key provisions of
IFRS 17, including its scope, recognition requirements, measurement models,
disclosure requirements as well as an overview of the impact of the new
Definition of insurance contract
definition is the same as under IFRS 4 which is a contract under which one
party (the insurer) 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.
contracts, including reinsurance contracts, an entity issues - there are no
significant changes in the scope compared to IFRS 4.
Investment contracts with discretionary participation features an entity
issues, provided the entity also issues insurance contracts.
• Fixed fee
service contract- An entity can make an irrevocable choice to apply IFRS 15
instead of IFRS 17, if these contracts meet pre-defined conditions. The choice
can be made on a contract by contract basis.
guarantees- With these, IFRS 17 also provides a choice. If the insurance
company previously asserted that these are insurance contracts under the
previous insurance standard, then that continues under IFRS 17 but if they have
previously been classified under the financial instrument standard, then the
Company can carry on with that classification.
worthy to note that IFRS 17 will not only affect traditional insurance
companies, but also health insurance providers, service providers that issue
bundle products, such as ateleccom services providerthat attached insurance
products to its services.. Policyholder accounting is out of scope of IFRS 17
(except for reinsurance contracts held)
recognition, an entity shall measure a group of insurance contracts at the
fulfilment cash flows, which comprise:
i. estimates of future cash flows ;
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 ; and
iii. a risk adjustment for non-financial risk
contractual service margin
on the next page provides an overview of activities to be performed when a
contract is initially recognised.
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