(a)if the issuer classifies the entire discretionary participation feature as a liability, it shall apply the liability adequacy test in paragraphs 15-19 to the whole contract (ie both the guaranteed element and the discretionary participation feature). The issuer need not determine the amount that would result from applying IFRS 9 to the guaranteed element
b)if the issuer classifies part or all of that feature as a separate component of equity, the liability recognised for the whole contract shall not be less than the amount that would result from applying IFRS 9 to the guaranteed element. That amount shall include the intrinsic value of an option to surrender the contract, but need not include its time value if paragraph 9 exempts that option from measurement at fair value. The issuer need not disclose the amount that would result from applying IFRS 9 to the guaranteed element, nor need it present that amount separately. Furthermore, the issuer need not determine that amount if the total liability recognised is clearly higher
c)although these contracts are financial instruments, the issuer may continue to recognise the premiums for those contracts as revenue and recognise as an expense the resulting increase in the carrying amount of the liability
d)although these contracts are financial instruments, an issuer applying paragraph 20(b) of IFRS 7 to contracts with a discretionary participation feature shall disclose the total interest expense recognised in profit or loss, but need not calculate such interest expense using the effective interest method
Disclosure
Explanation of recognised amounts
An insurer shall disclose information that identifies and explains the amounts in its financial statements arising from insurance contracts
To comply with paragraph 36, an insurer shall disclose
(a)its accounting policies for insurance contracts and related assets liabilities, income and expense
(b)the recognised assets, liabilities, income and expense (and, if it presents its statement of cash flows using the direct method, cash flows) arising from insurance contracts. Furthermore, if the insurer is a cedant, it shall disclose gains and losses recognised in profit or loss on buying reinsurance; and if the cedant defers and amortises gains and losses arising on buying reinsurance, the amortisation for the period and the amounts remaining unamortised at the beginning and end of the period
c) the process used to determine the assumptions that have the greatest effect on the measurement of the recognised amounts described in (b). When practicable, an insurer shall also give quantified disclosure of those assumptions
d) the effect of changes in assumptions used to measure insurance assets and insurance liabilities, showing separately the effect of each change that has a material effect on the financial statement
e)reconciliations of changes in insurance liabilities, reinsurance assets and, if any, related deferred acquisition costs
Nature and extent of risks arising from insurance contract
An insurer shall disclose information that enables users of its financial statements to evaluate the nature and extent of risks arising from insurance contracts
To comply with paragraph 38, an insurer shall disclose
a)its objectives, policies and processes for managing risks arising from insurance contracts and the methods used to manage those risks
b)[deleted
(c)information about insurance risk (both before and after risk mitigation by reinsurance), including information about sensitivity to insurance risk (see paragraph 39A
concentrations of insurance risk, including a description of how management determines concentrations and a description of the shared characteristic that identifies each concentration (eg type of insured event, geographical area, or currency actual claims compared with previous estimates (ie claims development). The disclosure about claims development shall go back to the period when the earliest material claim arose for which there is still uncertainty about the amount and timing of the claims payments, but need not go back more than ten years. An insurer need not disclose this information for claims for which uncertainty about the amount and timing of claims payments is typically resolved within one year
(d) information about credit risk, liquidity risk and market risk that paragraphs 31-42 of IFRS 7 would require if the insurance contracts were within the scope of IFRS 7. Howeveran insurer need not provide the maturity analyses required by paragraph 39(a) and (b) of IFRS 7 if it discloses information about the estimated timing of the net cash outflows resulting from recognised insurance liabilities instead. This may take the form of an analysis, by estimated timing, of the amounts recognised in the statement of financial position if an insurer uses an alternative method to manage sensitivity to market conditions, such as an embedded value analysis, it may use that sensitivity analysis to meet the requirement in paragraph 40(a) of IFRS 7. Such an insurer shall also provide the disclosures required by paragraph 41 of IFRS 7
(e)information about exposures to market risk arising from embedded derivatives contained in a host insurance contract if the insurer is not required to, and does not, measure the embedded derivatives at fair value
To comply with paragraph 39(c)(i), an insurer shall disclose either (a) or (b) as follows
a)a sensitivity analysis that shows how profit or loss and equity would have been affected if changes in the relevant risk variable that were reasonably possible at the end of the reporting period had occurred; the methods and assumptions used in preparing the sensitivity analysis; and any changes from the previous period in the methods and assumptions used. However, if an insurer uses an alternative method to manage sensitivity to market conditions, such as an embedded value analysis, it may meet this requirement by disclosing that alternative sensitivity analysis and the disclosures required by paragraph 41 of IFRS 7
(b)qualitative information about sensitivity, and information about those terms and conditions of insurance contracts that have a material effect on the amount, timing and uncertainty of the insurer's future cash flows
Effective date and transition
The transitional provisions in paragraphs 41-45 apply both to an entity that is already applying IFRSs when it first applies this IFRS and to an entity that applies IFRSs for the first time (a first-time adopter
An entity shall apply this IFRS for annual periods beginning on or after 1 January 2005. Earlier application is encouraged. If an entity applies this IFRS for an earlier period, it shall disclose that fact
Financial Guarantee Contracts (Amendments to IAS 39 and IFRS 4), issued in August 2005, amended paragraphs 4(d), B18(g) and B19(f). An entity shall apply those amendments for annual periods beginning on or after 1 January 2006. Earlier application is encouraged. If an entity applies those amendments for an earlier period, it shall disclose that fact and apply the related amendments to IAS 39 and IAS 324 at the same time.
IAS 1 (as revised in 2007) amended the terminology used throughout IFRSs. In addition it amended paragraph 30. An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. If an entity applies IAS 1 (revised 2007) for an earlier period, the amendments shall be applied for that earlier period
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IFRS 13 Fair Value Measurement, issued in May 2011, amended the definition of fair value in Appendix A. An entity shall apply that amendment when it applies IFRS 13
IFRS 9, as amended in November 2013, amended paragraphs 3, 4(d), 7, 8, 12, 34(d), 35, 45 and B18-B20 and Appendix A and deleted paragraphs 41C and 41D. An entity shall apply those amendments when it applies IFRS 9 as amended in November 2013
Disclosure
An entity need not apply the disclosure requirements in this IFRS to comparative information that relates to annual periods beginning before 1 January 2005, except for the disclosures required by paragraph 37(a) and (b) about accounting policies, and recognised assets, liabilities, income and expense (and cash flows if the direct method is used If it is impracticable to apply a particular requirement of paragraphs 10-35 to comparative information that relates to annual periods beginning before 1 January 2005, an entity shall disclose that fact. Applying the liability adequacy test (paragraphs 15-19) to such comparative information might sometimes be impracticable, but it is highly unlikely to be impracticable to apply other requirements of paragraphs 10-35 to such comparative information. IAS 8 explains the term 'impracticable
In applying paragraph 39(c)(iii), an entity need not disclose information about claims development that occurred earlier than five years before the end of the first financial year in which it applies this IFRS. Furthermore, if it is impracticable, when an entity first applies this IFRS, to prepare information about claims development that occurred before the beginning of the earliest period for which an entity presents full comparative information that complies with this IFRS, the entity shall disclose that fact
Redesignation of financial assets
Despite paragraph 4.4.1 of IFRS 9, when an insurer changes its accounting policies for insurance liabilities, it is permitted, but not required, to reclassify some or all of its financial assets so that they are measured at fair value. This reclassification is permitted if an insurer changes accounting policies when it first applies this IFRS and if it makes a subsequent policy change permitted by paragraph 22. The reclassification is a change in accounting policy and IAS 8 applies
Appendix A Defined terms
This appendix is an integral part of the IFRS
cedant deposit component
The policyholder under a reinsurance contract A contractual component that is not accounted for as a derivative under IFRS 9 and would be within the scope of IFRS 9 if it were a separate instrument
direct insurance contract
An insurance contract that is not a reinsurance contract
discretionary participation feature
A contractual right to receive, as a supplement to guaranteed benefits, additional benefits
a)that are likely to be a significant portion of the total contractual benefits
b) whose amount or timing is contractually at the discretion of the issuer; and
c)that are contractually based on
the performance of a specified pool of contracts or a specified type of contract realised and/or unrealised investment returns on a specified pool of assets held by the issuer; or the profit or loss of the company, fund or other entity that issues the contract
fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See IFRS 13)
financial guarantee contract
A contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument
financial risk
The risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign 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
guaranteed benefits
Payments or other benefits to which a particular policyholder or investor has an unconditional right that is not subject to the contractual discretion of the issuer
guaranteed element
An obligation to pay guaranteed benefits, included in a contract that contains a discretionary participation feature
insurance asset
An insurer's net contractual rights under an insurance contract
insurance contract
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. (See Appendix B for guidance on this definition
insurance liability
An insurer's net contractual obligations under an insurance contract Risk, other than financial risk, transferred from the holder of a contract to the issuer
insurance risk
An uncertain future event that is covered by an insurance contract and creates insurance risk
insured event
The party that has an obligation under an insurance contract to compensate a policyholder if an insured event occurs
insurer
An assessment of whether the carrying amount of an insurance liability needs to be increased (or the carrying amount of related deferred
liability adequacy test
acquisition costs or related intangible assets decreased), based on a review of future cash flows
policyholder
A party that has a right to compensation under an insurance contract if an insured event occurs A cedant's net contractual rights under a reinsurance contract
reinsurance assets
An insurance contract issued by one insurer (the reinsurer) to compensate
reinsurance contract
another insurer (the cedant) for losses on one or more contracts issued by the cedant
reinsurer
The party that has an obligation under a reinsurance contract to compensate a cedant if an insured event occurs
unbundle
Account for the components of a contract as if they were separate contracts
Appendix B Definition of an insurance contract
This appendix is an integral part of the IFRS This appendix gives guidance on the definition of an insurance contract in Appendix A. It addresses the following issues
(a)the term 'uncertain future event' (paragraphs B2-B4
(b)payments in kind (paragraphs B5-B7
(c)insurance risk and other risks (paragraphs B8-B17
(d)examples of insurance contracts (paragraphs B18-B21
(e)significant insurance risk (paragraphs B22-B28); and
(f)changes in the level of insurance risk (paragraphs B29 and B30
Uncertain future event
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) whether an insured event will occur
b)when it will occur; or
c)how much the insurer will need to pay if it occurs
In some insurance contracts, the insured event is the discovery of a loss during the term of the contract, even if the 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 whose financial effect is still uncertain. An example is a reinsurance contract that covers the direct insurer against adverse development of claims already reported by policyholders. In such contracts, the insured event is the discovery of the ultimate cost of those claims
Payments in kind
Some insurance contracts require or permit payments to be made in kind. An example is when the insurer replaces a stolen article directly, instead of reimbursing the policyholder. Another example is when an insurer uses its own hospitals and medical staff to provide medical services covered by the contract
Some fixed-fee service contracts in which the level of service depends on an uncertain event meet the definition of an insurance contract in this IFRS but are not regulated as insurance contracts in some countries. One example is a maintenance contract in which the service provider agrees to repair specified equipment after a malfunction. The fixed service fee is based on the expected number of malfunctions, but it is uncertain whether a particular machine will break down. The malfunction of the equipment adversely affects its owner and the contract compensates the owner (in kind, rather than cash). Another
example is a contract for car breakdown services in which the provider agrees, for a fixed annual fee, to provide roadside assistance or tow the car to a nearby garage. The latter contract could meet the definition of an insurance contract even if the provider does not agree to carry out repairs or replace parts
Applying the IFRS to the contracts described in paragraph B6 is likely to be no more burdensome than applying the IFRSs that would be applicable if such contracts were outside the scope of this IFRS
a)There are unlikely to be material liabilities for malfunctions and breakdowns that have already occurred
b)If IAS 18 Revenue applied, the service provider would recognise revenue by
c)reference to the stage of completion (and subject to other specified criteria). That approach is also acceptable under this IFRS, which permits the service provider (i) to continue its existing accounting policies for thesecontracts unless they involve practices prohibited by paragraph 14 and (ii) to improve its accounting policies if so permitted by paragraphs 22-30The service provider considers whether the cost of meeting its
(d)contractual obligation to provide services exceeds the revenue received in advance. To do this, it applies the liability adequacy test described in paragraphs 15-19 of this IFRS. If this IFRS did not apply to these contracts, the service provider would apply IAS 37 to determine whether the contracts are onerous For these contracts, the disclosure requirements in this IFRS are unlikely to add significantly to disclosures required by other IFRSs
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