Insurance contracts

Date recorded:

Cover Note (Agenda Paper 2)

The purpose of this session is to update the Board on the activities undertaken to support implementation of IFRS 17. The papers for this meeting were as follows:

The Board will not be asked to make any decisions at this meeting.

Summary of the Transition Resource Group for IFRS 17 Insurance Contracts meeting held on 2 May 2018 (Agenda Paper 2A)


The TRG held a meeting on 2 May 2018. This paper provides an overview of the TRG’s discussions at that meeting. The TRG discussed the following topics:

  1. Combination of insurance contracts
  2. Risk adjustment for non-financial risk in a group of entities
  3. Cash flows within the contract boundary
  4. Boundary of reinsurance contracts held with repricing mechanisms
  5. Determining the quantity of benefits for identifying coverage units
  6. Implementation challenges outreach report
  7. Reporting on other questions submitted

A summary of the issues can be found in our IFRS in Focus of the TRG meeting.

TRG submissions log (Agenda Paper 2B)


This paper provides a list of issues submitted to the TRG and their current status. It does not contain an analysis or questions for the Board.

Implementation challenges outreach report (Agenda Paper 2C)


This paper summarises comments from members of the TRG in relation to the following requirements in IFRS 17:

  • Presentation of groups of insurance contracts in the statement of financial position
  • Premiums received applying the premium allocation approach (PAA)
  • Subsequent treatment of insurance contracts acquired in their settlement period

Level of aggregation

IFRS 17 requires entities to identify premiums received for a group of insurance contracts (IFRS 17.33–37, 78). In contrast, the revenue recognised in each reporting period is not based on actual receipts of premium in each reporting period (IFRS 17.83, 55(b)(v)). A few TRG members suggested that IFRS 17 should be amended to require aggregation at a portfolio or entity level, rather than a group level.

Existing practice

Under existing practice, the line items of the statement of financial position reflect a relatively high level of aggregation of insurance contracts (for example entity level) which are disaggregated consistently with the way the entity manages its operations and systems. These line items reflect critical measures used for internal and external users of financial statements. TRG members are concerned that this information would be lost in applying IFRS 17 at the required group level aggregation.

Identifying premiums received

TRG members are concerned about the system challenges in identifying premiums received and other cash flows at a group of contracts level. A group of contracts is in an asset or a liability position based on the net sum of its liability for remaining coverage that uses premium received data and its liability for incurred claims. Integrating a system solution to provide the relevant information is likely to be complex and costly with the costs outweighing the benefits.  A few TRG members suggested an approximation approach to avoid the cost.

Identifying the liability for incurred claims

TRG members stated that identifying the liability for incurred claims for each group of insurance contracts is inconsistent with actuarial valuation principles and results in significant implementation costs. Claims are managed and administered in separate systems that are not linked to the system that generates information necessary to determine the liability for remaining coverage.

Supporting materials

Based on responses from TRG members, the staff is proposing to develop additional material that would be useful in facilitating a better understanding of the requirements of IFRS 17 and may be helpful in mitigating some of the implementation concerns expressed by preparers. The topics are the following:

  • Entities should consider the disclosure requirements on the nature and extent of risks to provide information about the entity’s exposure to insurance and financial risks that arise from insurance contracts.
  • The requirements in IFRS 17 specify the amounts to be reported, not the methodology to be used to determine those amounts.
  • An alternative approach to identifying the premiums received and the liability for incurred claims for each group of insurance contracts could be an allocation of fulfilment cash flows that have been estimated on a higher level of aggregation than a group or portfolio. This allocation must incorporate all reasonable and supportable information that is available without undue cost or effort.
  • Examples that illustrate the mechanics of the PAA together with the accounting under existing practice.

Treatment of contracts acquired in their settlement period

IFRS 17 treatment

Insurance contracts acquired in their settlement period (i.e. when the event has already occurred but the financial effect of which is still uncertain), the coverage the entity provides is for the adverse development of claims. In other words, the settlement period becomes the coverage period. As a result, those contracts are treated differently to similar contracts that were originally issued by the entity:

  • The PAA is not automatically available as the period over which claims could develop is longer than one year, with the entity having to prove that the PAA is a reasonable proxy for the general model.
  • Revenue is recognised over the period over which claims could develop, while revenue is no longer recognised over this period for similar contracts issued

Existing treatment

The IFRS 17 treatment reflects a significant change from existing practice and this change results in implementation challenges and costs. Most members noted that their concern is primarily with regard to entities that expect to use the PAA for all contracts they issue. Currently, those contracts are accounted for as liability for incurred claims of the acquirer. Some TRG members argued that the IFRS 17 treatment might be perceived as misleading or counterintuitive as it distinguishes similar contracts based on whether they have been issued by the entity or acquired in their settlement period. They were also concerned with the recognition of revenue for these contracts.

Board Discussion

There was no technical discussion of the issues presented in the papers.

One Board member said that constituents should not get the impression that central requirements in the Standard will be changed. With regard to coverage units this Board member asked whether there would be a follow-up. The staff confirmed that they would discuss that issue at a future meeting.

One Board member informed the Board that the majority of participants at an IFRS 17 workshop in Malaysia supported the final Standard but struggle with resources and systems.

The Vice-Chair expressed concern about communication in the TRG summary. Stating that requirements could be read in different ways might be misinterpreted as an official IASB position, although this is only the perception of TRG members. This might lead to inconsistent implementation.

No decisions were made.

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