IFRS 17 (Insurance Contracts)

is a comprehensive standard issued by the International Accounting Standards Board (IASB)

that outlines the accounting for insurance contracts. It replaces IFRS 4 and aims to provide a
consistent, transparent framework for insurance contract accounting. Here’s a detailed
description of the scope, requirements, measurement, recognition, and disclosure under IFRS 17:

Scope

Description:

General Scope: IFRS 17 applies to all insurance contracts issued by an entity, including
reinsurance contracts held. It covers a wide range of insurance contracts, including life
insurance, non-life insurance, and health insurance.

Exclusions: IFRS 17 does not apply to certain types of contracts, such as:

o Guarantees: Financial guarantees not considered insurance contracts.

o Investment Contracts: Investment contracts with discretionary participation
features that are not accounted for as insurance contracts.
o Warranties and Product Guarantees: These are often accounted for under
different standards like IFRS 15 or IAS 37.

Key Points:

Contract Boundaries: The scope includes contracts that are within the boundary of the
contract period, generally defined by the contractual terms and conditions.

Reinsurance Contracts: Applies to reinsurance contracts held, which are contracts

purchased by an insurer to mitigate the risk associated with its own insurance contracts.

Recognition

Description:

Initial Recognition: Insurance contracts are recognized when the insurer becomes a
party to the contract. This is typically when the contract is issued, and the insurer has
accepted the risk transfer from the policyholder.

Contract Boundaries: The contract is recognized within its boundary, which is the
period during which the insurer is obligated to provide coverage and is exposed to risks.

Key Points:

Insurance Contracts Issued: Recognized at the start of the coverage period.

 Contracts Acquired: Reinsurance contracts held are recognized when the insurer
becomes party to the reinsurance agreement.

Measurement

Description: IFRS 17 requires insurance contracts to be measured using a current value

approach, focusing on updating estimates and assumptions regularly.

Measurement Approaches:

General Measurement Model (GMM): The default model used for most insurance
contracts, comprising:

o Fulfillment Cash Flows: Expected future cash flows, discounted to present value.
o Contractual Service Margin (CSM): Represents the unearned profit of the
insurance contract, which is recognized over the coverage period.

Premium Allocation Approach (PAA): A simplified approach for short-duration

contracts, similar to unearned premium accounting. It is generally used for non-life
insurance contracts with coverage periods of one year or less.

Variable Fee Approach (VFA): Applies to insurance contracts with direct participation
features, where the insurer shares the returns on underlying items with the policyholder.
It adjusts the measurement to reflect the insurer’s share of the underlying items.

Key Points:

Fulfillment Cash Flows: Include estimates of future cash inflows and outflows, time
value of money, and financial risks.

Discount Rate: The discount rate used for present value calculations must reflect the
characteristics of the insurance contract.

Requirements

Description: IFRS 17 sets out specific requirements for how insurance contracts should be
accounted for and reported.

Key Requirements:

Initial Measurement: Insurance contracts are measured at the present value of future
cash flows plus a margin (CSM) at inception.

Subsequent Measurement: Requires updating estimates for future cash flows and
adjusting the CSM over the coverage period based on the changes in the fulfillment cash
flows.
 Profit Recognition: Profit is recognized over the period of coverage, reflecting the
pattern of service delivery.

Key Points:

Unlocking the CSM: The CSM is adjusted for changes in estimates of future cash flows
and risk adjustments.

Reinsurance Contracts: Separate measurement requirements apply, including

adjustments for the ceded insurance risk.

Disclosure

Description: IFRS 17 requires extensive disclosures to enhance the transparency and

comparability of financial information related to insurance contracts.

Key Disclosures:

Significant Judgments: Disclosure of the judgments made in applying IFRS 17,

including assumptions and methodologies used.

Financial Performance: Information about the financial performance of insurance

contracts, including revenue, expenses, and the changes in the CSM.

Risk and Uncertainty: Information about the risks related to insurance contracts,
including sensitivity analyses and the effect of changes in assumptions.

Contractual Service Margin (CSM): Detailed information on the CSM, including

movements during the reporting period.

Key Points:

Contract Boundaries: Disclosures about the boundaries of insurance contracts and how
they affect the measurement of liabilities.

Reinsurance: Disclosures related to the impact of reinsurance contracts on financial

statements.

Summary

Scope: IFRS 17 applies to insurance contracts, including reinsurance, but excludes

certain contracts like financial guarantees.

Recognition: Insurance contracts are recognized when issued, and the boundary is
defined by coverage and risk transfer.
 Measurement: Involves current value approaches including the General Measurement
Model (GMM), Premium Allocation Approach (PAA), and Variable Fee Approach
(VFA).

Requirements: Defines how to measure and report insurance contracts, including initial
and subsequent measurement, and profit recognition.

Disclosure: Requires extensive disclosures to provide insights into the financial

performance and risks associated with insurance contracts.

IFRS 17 aims to enhance comparability, transparency, and consistency in the accounting for
insurance contracts, providing a clearer picture of insurers' financial health and performance.