Ifrs 4 Practical Guide.pdf
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PRACTICAL GUIDE IFRS 4: INSURANCE CONTRACTS
www.consultasifrs.com/uk
© 2014 www.consultasifrs.com
1
ConsultasIFRS is an online firm specialized in advisory on IFRS.
PRACTICAL GUIDE IFRS 4 Insurance Contracts Our only goal is to exceed your expectations
The objective of this IFRS is to specify the financial reporting for insurance contracts by any entity that issues such contracts (described in this IFRS as an insurer) until the Board completes the second phase of its project on insurance contracts. In particular, this IFRS requires: (a) limited improvements to accounting by insurers for insurance contracts. (b) disclosure that identifies and explains the amounts in an insurer’s financial statements arising from insurance contracts and helps users of those financial statements understand the amount, timing and uncertainty of future cash flows from insurance contracts.
Over 4,000 accounting questions and answers "online" on IFRS
An insurance contract 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. The IFRS applies to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds, except for specified contracts covered by other IFRSs. It does not apply to other assets and liabilities of an insurer, such as financial assets and financial liabilities within the scope of IFRS 9 Financial Instruments. Furthermore, it does not address accounting by policyholders.
Quality, excellence, and dedication, our key intangible asset
The IFRS exempts an insurer temporarily (ie during phase I of this project) from some requirements of other IFRSs, including the requirement to consider the Framework in selecting accounting policies for insurance contracts. However, the IFRS: (a) prohibits provisions for possible claims under contracts that are not in existence at the end of the reporting period (such as catastrophe and equalisation provisions). (b) requires a test for the adequacy of recognised insurance liabilities and an impairment test for reinsurance assets. (c) requires an insurer to keep insurance liabilities in its statement of financial position until they are discharged or cancelled, or expire, and to present insurance liabilities without offsetting them against related reinsurance assets The IFRS permits an insurer to change its accounting policies for insurance contracts only if, as a result, its financial statements present information that is more relevant
© 2014 www.consultasifrs.com
Development support of your business, specializing in IFRS accounting advisors
2
and no less reliable, or more reliable and no less relevant. In particular, an insurer cannot introduce any of the following practices, although it may continue using accounting policies that involve them: (a) measuring insurance liabilities on an undiscounted basis. (b) measuring contractual rights to future investment management fees at an amount that exceeds their fair value as implied by a comparison with current fees charged by other market participants for similar services. (c) using non-uniform accounting policies for the insurance liabilities of subsidiaries. The IFRS permits the introduction of an accounting policy that involves remeasuring designated insurance liabilities consistently in each period to reflect current market interest rates (and, if the insurer so elects, other current estimates and assumptions). Without this permission, an insurer would have been required to apply the change in accounting policies consistently to all similar liabilities. The IFRS requires disclosure to help users understand: (a) the amounts in the insurer’s financial statements that arise from insurance contracts. (b) the nature and extent of risks arising from insurance contracts. Practical Guidance in order to determinate if life contingent annuity is within scope IFRS 4 Life-contingent annuity.
Insurance contract (unless contingent amount is insignificant in all scenarios that have commercial substance). Insurer could suffer a significant loss on an individual contract if the annuitant survives longer than expected.
Pure endowment. The insured person receives a payment on survival to a specified date, but beneficiaries receive nothing if the insured person dies before then.
Insurance contract (unless the transfer of insurance risk is insignificant). If a relatively homogeneous book of pure endowments is known to consist of contracts that all transfer insurance risk, the insurer may classify the entire book as insurance contracts without examining each contract to identify a few non-derivative pure endowments that transfer insignificant insurance risk (see paragraph B25).
Deferred annuity: policyholder will receive, or can elect to receive, a life-
Insurance contract (unless the transfer of insurance risk is insignificant). The contract
© 2014 www.consultasifrs.com
3
contingent annuity at rates guaranteed at inception.
transfers mortality risk to the insurer at inception, because the insurer might have to pay significant additional benefits for an individual contract if the annuitant elects to take the life-contingent annuity and survives longer than expected (unless the contingent amount is insignificant in all scenarios that have commercial substance).
Deferred annuity: policyholder will receive, or can elect to receive, a lifecontingent annuity at rates prevailing when the annuity begins.
Not an insurance contract at inception, if the insurer can reprice the mortality risk without constraints. Within the scope of IAS 39 Financial Instruments: Recognition and Measurement unless the contract contains a discretionary participation feature. Will become an insurance contract when the annuity rate is fixed (unless the contingent amount is insignificant in all scenarios that have commercial substance).
The Technical summary has been prepared by IFRS Foundation staff and has not been approved by the IASB. For the requirements reference must be made to International Financial Reporting Standard which can be obtained if pay the subscription to IASB – www.ifrs.org The examples included in this application guide have been prepared by ConsultasIFRS team. You are not allowed to copy, forward, edit, translate, modify, use or copy any content.
© 2014 www.consultasifrs.com
4
Contact [email protected]
© 2014 www.consultasifrs.com
5
www.consultasifrs.com/uk
© 2014 www.consultasifrs.com
1
ConsultasIFRS is an online firm specialized in advisory on IFRS.
PRACTICAL GUIDE IFRS 4 Insurance Contracts Our only goal is to exceed your expectations
The objective of this IFRS is to specify the financial reporting for insurance contracts by any entity that issues such contracts (described in this IFRS as an insurer) until the Board completes the second phase of its project on insurance contracts. In particular, this IFRS requires: (a) limited improvements to accounting by insurers for insurance contracts. (b) disclosure that identifies and explains the amounts in an insurer’s financial statements arising from insurance contracts and helps users of those financial statements understand the amount, timing and uncertainty of future cash flows from insurance contracts.
Over 4,000 accounting questions and answers "online" on IFRS
An insurance contract 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. The IFRS applies to all insurance contracts (including reinsurance contracts) that an entity issues and to reinsurance contracts that it holds, except for specified contracts covered by other IFRSs. It does not apply to other assets and liabilities of an insurer, such as financial assets and financial liabilities within the scope of IFRS 9 Financial Instruments. Furthermore, it does not address accounting by policyholders.
Quality, excellence, and dedication, our key intangible asset
The IFRS exempts an insurer temporarily (ie during phase I of this project) from some requirements of other IFRSs, including the requirement to consider the Framework in selecting accounting policies for insurance contracts. However, the IFRS: (a) prohibits provisions for possible claims under contracts that are not in existence at the end of the reporting period (such as catastrophe and equalisation provisions). (b) requires a test for the adequacy of recognised insurance liabilities and an impairment test for reinsurance assets. (c) requires an insurer to keep insurance liabilities in its statement of financial position until they are discharged or cancelled, or expire, and to present insurance liabilities without offsetting them against related reinsurance assets The IFRS permits an insurer to change its accounting policies for insurance contracts only if, as a result, its financial statements present information that is more relevant
© 2014 www.consultasifrs.com
Development support of your business, specializing in IFRS accounting advisors
2
and no less reliable, or more reliable and no less relevant. In particular, an insurer cannot introduce any of the following practices, although it may continue using accounting policies that involve them: (a) measuring insurance liabilities on an undiscounted basis. (b) measuring contractual rights to future investment management fees at an amount that exceeds their fair value as implied by a comparison with current fees charged by other market participants for similar services. (c) using non-uniform accounting policies for the insurance liabilities of subsidiaries. The IFRS permits the introduction of an accounting policy that involves remeasuring designated insurance liabilities consistently in each period to reflect current market interest rates (and, if the insurer so elects, other current estimates and assumptions). Without this permission, an insurer would have been required to apply the change in accounting policies consistently to all similar liabilities. The IFRS requires disclosure to help users understand: (a) the amounts in the insurer’s financial statements that arise from insurance contracts. (b) the nature and extent of risks arising from insurance contracts. Practical Guidance in order to determinate if life contingent annuity is within scope IFRS 4 Life-contingent annuity.
Insurance contract (unless contingent amount is insignificant in all scenarios that have commercial substance). Insurer could suffer a significant loss on an individual contract if the annuitant survives longer than expected.
Pure endowment. The insured person receives a payment on survival to a specified date, but beneficiaries receive nothing if the insured person dies before then.
Insurance contract (unless the transfer of insurance risk is insignificant). If a relatively homogeneous book of pure endowments is known to consist of contracts that all transfer insurance risk, the insurer may classify the entire book as insurance contracts without examining each contract to identify a few non-derivative pure endowments that transfer insignificant insurance risk (see paragraph B25).
Deferred annuity: policyholder will receive, or can elect to receive, a life-
Insurance contract (unless the transfer of insurance risk is insignificant). The contract
© 2014 www.consultasifrs.com
3
contingent annuity at rates guaranteed at inception.
transfers mortality risk to the insurer at inception, because the insurer might have to pay significant additional benefits for an individual contract if the annuitant elects to take the life-contingent annuity and survives longer than expected (unless the contingent amount is insignificant in all scenarios that have commercial substance).
Deferred annuity: policyholder will receive, or can elect to receive, a lifecontingent annuity at rates prevailing when the annuity begins.
Not an insurance contract at inception, if the insurer can reprice the mortality risk without constraints. Within the scope of IAS 39 Financial Instruments: Recognition and Measurement unless the contract contains a discretionary participation feature. Will become an insurance contract when the annuity rate is fixed (unless the contingent amount is insignificant in all scenarios that have commercial substance).
The Technical summary has been prepared by IFRS Foundation staff and has not been approved by the IASB. For the requirements reference must be made to International Financial Reporting Standard which can be obtained if pay the subscription to IASB – www.ifrs.org The examples included in this application guide have been prepared by ConsultasIFRS team. You are not allowed to copy, forward, edit, translate, modify, use or copy any content.
© 2014 www.consultasifrs.com
4
Contact [email protected]
© 2014 www.consultasifrs.com
5
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