IFRS 17

Insurance Contracts

1Objective and scope

IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts, so that an entity provides relevant information that faithfully represents those contracts and gives users a basis to assess their effect on financial position, financial performance and cash flows. It replaced IFRS 4, the previous interim standard, which had permitted a wide variety of national practices to continue.

2Key definitions

3Measurement: the general model

Under the General Measurement Model, a group of insurance contracts is measured as the total of the fulfilment cash flows (the present value of future cash flows, adjusted for the time value of money and financial risks, plus a risk adjustment for non-financial risk) and the contractual service margin. The CSM represents unearned profit and is released to profit or loss over the coverage period, based on the coverage units provided in each period - so profit is recognised as insurance service is delivered, not when the premium is received. If a group of contracts is expected to be loss-making (onerous), the loss is recognised immediately in profit or loss, and no CSM is established for that group.

Insurance revenue is recognised as the insurer provides coverage and is released from risk, not simply as premiums are received or invoiced - a deliberate decoupling of revenue recognition from cash collected, conceptually similar to the performance-obligation approach in IFRS 15. A variable fee approach applies to contracts with direct participation features, where the entity's obligation is to pay the policyholder an amount substantially linked to the returns on specified underlying items.

4The premium allocation approach

A simplified premium allocation approach is permitted (and is common in practice for general/short-tail insurance) for contracts with a coverage period of one year or less, or where it can be shown to produce a measurement not materially different from the general model. The liability for remaining coverage under PAA is broadly the unearned premium, adjusted for acquisition cash flows, avoiding the need for a full actuarial fulfilment cash flow and CSM calculation.

5Examinable focus