ifrs-17-insurance-contracts.pdf

IFRS 17

Insurance Contracts

In March 2004 the International Accounting Standards Board (Board) issued IFRS 4

Insurance Contracts. IFRS 4 was an interim standard which was meant to be in place until

the Board completed its project on insurance contracts. IFRS 4 permitted entities to use a

wide variety of accounting practices for insurance contracts, reflecting national

accounting requirements and variations of those requirements, subject to limited

improvements and specified disclosures.

In May 2017, the Board completed its project on insurance contracts with the issuance of

IFRS 17 Insurance Contracts. IFRS 17 replaces IFRS 4 and sets out principles for the

recognition, measurement, presentation and disclosure of insurance contracts within the

scope of IFRS 17.

In June 2020, the Board issued Amendments to IFRS 17. The objective of the amendments is

to assist entities implementing the Standard, while not unduly disrupting

implementation or diminishing the usefulness of the information provided by applying

IFRS 17.

In December 2021, the Board issued Initial Application of IFRS 17 and IFRS 9—Comparative

Information (Amendment to IFRS 17). The minor amendment relates to the transition to

IFRS 17.

Other Standards have made minor consequential amendments to IFRS 17, including

Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018)

and Deﬁnition of Material (Amendments to IAS 1 and IAS 8) (issued October 2018).

IFRS 17

CONTENTS

from paragraph

IFRS 17 INSURANCE CONTRACTS

OBJECTIVE 1

SCOPE 3

Combination of insurance contracts 9

Separating components from an insurance contract 10

LEVEL OF AGGREGATION OF INSURANCE CONTRACTS 14

RECOGNITION 25

Insurance acquisition cash ows 28A

MEASUREMENT 29

Measurement on initial recognition 32

Subsequent measurement 40

Onerous contracts 47

Premium allocation approach 53

Reinsurance contracts held 60

Investment contracts with discretionary participation features 71

MODIFICATION AND DERECOGNITION 72

Modication of an insurance contract 72

Derecognition 74

PRESENTATION IN THE STATEMENT OF FINANCIAL POSITION 78

RECOGNITION AND PRESENTATION IN THE STATEMENT(S) OF FINANCIAL

PERFORMANCE 80

Insurance service result 83

Insurance nance income or expenses 87

DISCLOSURE 93

Explanation of recognised amounts 97

Signicant judgements in applying IFRS 17 117

Nature and extent of risks that arise from contracts within the scope of

IFRS 17 121

APPENDICES

A Dened terms

B Application guidance

C Effective date and transition

D Amendments to other IFRS Standards

APPROVAL BY THE BOARD OF IFRS 17 INSURANCE CONTRACTS

APPROVAL BY THE BOARD OF AMENDMENTS TO IFRS 17 ISSUED IN

JUNE 2020

continued...

IFRS 17

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...continued

APPROVAL BY THE BOARD OF INITIAL APPLICATION OF IFRS 17 AND

IFRS 9—COMPARATIVE INFORMATION ISSUED IN DECEMBER 2021

FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION

ILLUSTRATIVE EXAMPLES

FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION

BASIS FOR CONCLUSIONS

IFRS 17

IFRS 17 Insurance Contracts is set out in paragraphs 1–132 and appendices A–D. All the

paragraphs have equal authority. Paragraphs in bold type state the main principles.

Terms defined in Appendix A are in italics the first time that they appear in the

Standard. Definitions of other terms are given in the Glossary for IFRS Standards. The

Standard should be read in the context of its objective and the Basis for Conclusions,

the Preface to IFRS Standards and the Conceptual Framework for Financial

Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a

basis for selecting and applying accounting policies in the absence of explicit guidance.

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International Financial Reporting Standard 17

Insurance Contracts

Objective

IFRS 17 Insurance Contracts establishes principles for the recognition,

measurement, presentation and disclosure of insurance contracts within the

scope of the Standard. The objective of IFRS 17 is to ensure that an entity

provides relevant information that faithfully represents those contracts.

This information gives a basis for users of ﬁnancial statements to assess the

effect that insurance contracts have on the entity’s ﬁnancial position,

ﬁnancial performance and cash ﬂows.

An entity shall consider its substantive rights and obligations, whether they

arise from a contract, law or regulation, when applying IFRS 17. A contract is

an agreement between two or more parties that creates enforceable rights and

obligations. Enforceability of the rights and obligations in a contract is a

matter of law. Contracts can be written, oral or implied by an entity’s

customary business practices. Contractual terms include all terms in a

contract, explicit or implied, but an entity shall disregard terms that have no

commercial substance (ie no discernible effect on the economics of the

contract). Implied terms in a contract include those imposed by law or

regulation. The practices and processes for establishing contracts with

customers vary across legal jurisdictions, industries and entities. In addition,

they may vary within an entity (for example, they may depend on the class of

customer or the nature of the promised goods or services).

Scope

An entity shall apply IFRS 17 to:

(a) insurance contracts, including reinsurance contracts, it issues;

(b) reinsurance contracts it holds; and

provided the entity also issues insurance contracts.

All references in IFRS 17 to insurance contracts also apply to:

(a) reinsurance contracts held, except:

(i) for references to insurance contracts issued; and

(ii) as described in paragraphs 60–70A.

(b) investment contracts with discretionary participation features as set

out in paragraph 3(c), except for the reference to insurance contracts

in paragraph 3(c) and as described in paragraph 71.

All references in IFRS 17 to insurance contracts issued also apply to insurance

contracts acquired by the entity in a transfer of insurance contracts or a

business combination other than reinsurance contracts held.

IFRS 17

Appendix A defines an insurance contract and paragraphs B2–B30 of

Appendix B provide guidance on the definition of an insurance contract.

An entity shall not apply IFRS 17 to:

(a) warranties provided by a manufacturer, dealer or retailer in

connection with the sale of its goods or services to a customer

(see IFRS 15 Revenue from Contracts with Customers).

(b) employers’ assets and liabilities from employee benefit plans

(see IAS 19 Employee Beneﬁts and IFRS 2 Share-based Payment) and

retirement benefit obligations reported by defined benefit retirement

plans (see IAS 26 Accounting and Reporting by Retirement Beneﬁt Plans).

(c)

contractual rights or contractual obligations contingent on the future

use of, or the right to use, a non-financial item (for example, some

licence fees, royalties, variable and other contingent lease payments

and similar items: see IFRS 15, IAS 38 Intangible

Assets and IFRS 16 Leases).

(d)

residual value guarantees provided by a manufacturer, dealer or

retailer and a lessee’s residual value guarantees when they are

embedded in a lease (see IFRS 15 and IFRS 16).

(e) financial guarantee contracts, unless the issuer has previously asserted

explicitly that it regards such contracts as insurance contracts and has

used accounting applicable to insurance contracts. The issuer shall

choose to apply either IFRS 17 or IAS 32 Financial Instruments:

Presentation, IFRS 7 Financial Instruments: Disclosures and IFRS 9 Financial

Instruments to such financial guarantee contracts. The issuer may make

that choice contract by contract, but the choice for each contract is

irrevocable.

(f) contingent consideration payable or receivable in a business

combination (see IFRS 3 Business Combinations).

(g) insurance contracts in which the entity is the policyholder, unless those

contracts are reinsurance contracts held (see paragraph 3(b)).

(h) credit card contracts, or similar contracts that provide credit or

payment arrangements, that meet the definition of an insurance

contract if, and only if, the entity does not reflect an assessment of

the insurance risk associated with an individual customer in setting the

price of the contract with that customer (see IFRS 9 and other

applicable IFRS Standards). However, if, and only if, IFRS 9 requires an

entity to separate an insurance coverage component

(see paragraph 2.1(e)(iv) of IFRS 9) that is embedded in such a contract,

the entity shall apply IFRS 17 to that component.

Some contracts meet the definition of an insurance contract but have as their

primary purpose the provision of services for a fixed fee. An entity may choose

to apply IFRS 15 instead of IFRS 17 to such contracts that it issues if, and only

if, specified conditions are met. The entity may make that choice contract by

contract, but the choice for each contract is irrevocable. The conditions are:

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(a) the entity does not reflect an assessment of the risk associated with an

individual customer in setting the price of the contract with that

customer;

(b) the contract compensates the customer by providing services, rather

than by making cash payments to the customer; and

the customer’s use of services rather than from uncertainty over the

cost of those services.

Some contracts meet the definition of an insurance contract but limit the

compensation for insured events to the amount otherwise required to settle the

policyholder’s obligation created by the contract (for example, loans with

death waivers). An entity shall choose to apply either IFRS 17 or IFRS 9 to such

contracts that it issues unless such contracts are excluded from the scope

of IFRS 17 by paragraph 7. The entity shall make that choice for each portfolio

of insurance contracts, and the choice for each portfolio is irrevocable.

Combination of insurance contracts

A set or series of insurance contracts with the same or a related counterparty

may achieve, or be designed to achieve, an overall commercial effect. In order

to report the substance of such contracts, it may be necessary to treat the set

or series of contracts as a whole. For example, if the rights or obligations in

one contract do nothing other than entirely negate the rights or obligations in

another contract entered into at the same time with the same counterparty,

the combined effect is that no rights or obligations exist.

Separating components from an insurance contract

(paragraphs B31–B35)

An insurance contract may contain one or more components that would be

within the scope of another Standard if they were separate contracts. For

example, an insurance contract may include an investment component or a

component for services other than insurance contract services (or both). An

entity shall apply paragraphs 11–13 to identify and account for the

components of the contract.

An entity shall:

(a) apply IFRS 9 to determine whether there is an embedded derivative to

be separated and, if there is, how to account for that derivative.

(b) separate from a host insurance contract an investment component if,

and only if, that investment component is distinct (see paragraphs

B31–B32). The entity shall apply IFRS 9 to account for the separated

investment component unless it is an investment contract with

discretionary participation features within the scope of IFRS 17 (see

paragraph 3(c)).

IFRS 17

After applying paragraph 11 to separate any cash flows related to embedded

derivatives and distinct investment components, an entity shall separate from

the host insurance contract any promise to transfer to a policyholder distinct

goods or services other than insurance contract services, applying paragraph 7

of IFRS 15. The entity shall account for such promises applying IFRS 15. In

applying paragraph 7 of IFRS 15 to separate the promise, the entity shall

apply paragraphs B33–B35 of IFRS 17 and, on initial recognition, shall:

(a) apply IFRS 15 to attribute the cash inflows between the insurance

component and any promises to provide distinct goods or services

other than insurance contract services; and

(b)

attribute the cash outflows between the insurance component and any

promised goods or services other than insurance contract services,

accounted for applying IFRS 15 so that:

(i)

cash outflows that relate directly to each component are

attributed to that component; and

(ii)

any remaining cash outflows are attributed on a systematic and

rational basis, reflecting the cash outflows the entity would

expect to arise if that component were a separate contract.

After applying paragraphs 11–12, an entity shall apply IFRS 17 to all

remaining components of the host insurance contract. Hereafter, all

references in IFRS 17 to embedded derivatives refer to derivatives that have

not been separated from the host insurance contract and all references to

investment components refer to investment components that have not been

separated from the host insurance contract (except those references in

paragraphs B31–B32).

Level of aggregation of insurance contracts

An entity shall identify portfolios of insurance contracts. A portfolio

comprises contracts subject to similar risks and managed together.

Contracts within a product line would be expected to have similar risks

and hence would be expected to be in the same portfolio if they are

managed together. Contracts in different product lines (for example single

premium ﬁxed annuities compared with regular term life assurance) would

not be expected to have similar risks and hence would be expected to be in

different portfolios.

Paragraphs 16–24 apply to insurance contracts issued. The requirements

for the level of aggregation of reinsurance contracts held are set out in

paragraph 61.

An entity shall divide a portfolio of insurance contracts issued into a

minimum of:

(a)

a group of contracts that are onerous at initial recognition, if any;

(b)

a group of contracts that at initial recognition have no signiﬁcant

possibility of becoming onerous subsequently, if any; and

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If an entity has reasonable and supportable information to conclude that a set

of contracts will all be in the same group applying paragraph 16, it may

measure the set of contracts to determine if the contracts are onerous (see

paragraph 47) and assess the set of contracts to determine if the contracts

have no significant possibility of becoming onerous subsequently (see

paragraph 19). If the entity does not have reasonable and supportable

information to conclude that a set of contracts will all be in the same group, it

shall determine the group to which contracts belong by considering individual

contracts.

For contracts issued to which an entity applies the premium allocation

approach (see paragraphs 53–59), the entity shall assume no contracts in the

portfolio are onerous at initial recognition, unless facts and circumstances

indicate otherwise. An entity shall assess whether contracts that are not

onerous at initial recognition have no significant possibility of becoming

onerous subsequently by assessing the likelihood of changes in applicable

facts and circumstances.

For contracts issued to which an entity does not apply the premium allocation

approach (see paragraphs 53–54), an entity shall assess whether contracts that

are not onerous at initial recognition have no significant possibility of

becoming onerous:

(a) based on the likelihood of changes in assumptions which, if they

occurred, would result in the contracts becoming onerous.

(b) using information about estimates provided by the entity’s internal

reporting. Hence, in assessing whether contracts that are not onerous

at initial recognition have no significant possibility of becoming

onerous:

(i) an entity shall not disregard information provided by its

internal reporting about the effect of changes in assumptions

on different contracts on the possibility of their becoming

onerous; but

(ii) an entity is not required to gather additional information

beyond that provided by the entity’s internal reporting about

the effect of changes in assumptions on different contracts.

If, applying paragraphs 14–19, contracts within a portfolio would fall into

different groups only because law or regulation specifically constrains the

entity’s practical ability to set a different price or level of benefits for

policyholders with different characteristics, the entity may include those

contracts in the same group. The entity shall not apply this paragraph by

analogy to other items.

An entity is permitted to subdivide the groups described in paragraph 16. For

example, an entity may choose to divide the portfolios into:

(a)

more groups that are not onerous at initial recognition—if the entity’s

internal reporting provides information that distinguishes:

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(i) different levels of profitability; or

(ii) different possibilities of contracts becoming onerous after

initial recognition; and

(b) more than one group of contracts that are onerous at initial

recognition—if the entity’s internal reporting provides information at

a more detailed level about the extent to which the contracts are

onerous.

An entity shall not include contracts issued more than one year apart in

the same group. To achieve this the entity shall, if necessary, further divide

the groups described in paragraphs 16–21.

A group of insurance contracts shall comprise a single contract if that is the result

of applying paragraphs 14–22.

An entity shall apply the recognition and measurement requirements of

IFRS 17 to the groups of contracts determined by applying paragraphs 14–23.

An entity shall establish the groups at initial recognition and add contracts to

the groups applying paragraph 28. The entity shall not reassess the

composition of the groups subsequently. To measure a group of contracts, an

entity may estimate the fulﬁlment cash ﬂows at a higher level of aggregation

than the group or portfolio, provided the entity is able to include the

appropriate fulfilment cash flows in the measurement of the group, applying

paragraphs 32(a), 40(a)(i) and 40(b), by allocating such estimates to groups of

contracts.

Recognition

An entity shall recognise a group of insurance contracts it issues from the

earliest of the following:

(a) the beginning of the coverage period of the group of contracts;

(b) the date when the ﬁrst payment from a policyholder in the group

becomes due; and

If there is no contractual due date, the first payment from the policyholder is

deemed to be due when it is received. An entity is required to determine

whether any contracts form a group of onerous contracts applying

paragraph 16 before the earlier of the dates set out in paragraphs 25(a) and

25(b) if facts and circumstances indicate there is such a group.

[Deleted]

In recognising a group of insurance contracts in a reporting period, an entity

shall include only contracts that individually meet one of the criteria set out

in paragraph 25 and shall make estimates for the discount rates at the date of

initial recognition (see paragraph B73) and the coverage units provided in the

reporting period (see paragraph B119). An entity may include more contracts

in the group after the end of a reporting period, subject to paragraphs 14–22.

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An entity shall add a contract to the group in the reporting period in which

that contract meets one of the criteria set out in paragraph 25. This may result

in a change to the determination of the discount rates at the date of initial

recognition applying paragraph B73. An entity shall apply the revised rates

from the start of the reporting period in which the new contracts are added to

the group.

Insurance acquisition cash ows (paragraphs B35A‒

B35D)

An entity shall allocate insurance acquisition cash ﬂows to groups of insurance

contracts using a systematic and rational method applying paragraphs B35A‒

B35B, unless it chooses to recognise them as expenses

applying paragraph 59(a).

An entity not applying paragraph 59(a) shall recognise as an asset insurance

acquisition cash flows paid (or insurance acquisition cash flows for which a

liability has been recognised applying another IFRS Standard) before the

related group of insurance contracts is recognised. An entity shall recognise

such an asset for each related group of insurance contracts.

An entity shall derecognise an asset for insurance acquisition cash flows when

the insurance acquisition cash flows are included in the measurement of the

related group of insurance contracts applying paragraph 38(c)(i) or

paragraph 55(a)(iii).

If paragraph 28 applies, an entity shall apply paragraphs 28B‒28C in

accordance with paragraph B35C.

At the end of each reporting period, an entity shall assess the recoverability of

an asset for insurance acquisition cash flows if facts and circumstances

indicate the asset may be impaired (see paragraph B35D). If an entity identifies

an impairment loss, the entity shall adjust the carrying amount of the asset

and recognise the impairment loss in profit or loss.

An entity shall recognise in profit or loss a reversal of some or all of an

impairment loss previously recognised applying paragraph 28E and increase

the carrying amount of the asset, to the extent that the impairment

conditions no longer exist or have improved.

Measurement (paragraphs B36–B119F)

An entity shall apply paragraphs 30–52 to all groups of insurance

contracts within the scope of IFRS 17, with the following exceptions:

(a) for groups of insurance contracts meeting either of the criteria

specified in paragraph 53, an entity may simplify the measurement of

the group using the premium allocation approach in paragraphs

55–59.

28A

28B

28C

28D

28E

28F

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(b) for groups of reinsurance contracts held, an entity shall

apply paragraphs 32–46 as required by paragraphs 63–70A.

Paragraph 45 (on insurance contracts with direct participation features)

and paragraphs 47–52 (on onerous contracts) do not apply to groups of

reinsurance contracts held.

features, an entity shall apply paragraphs 32–52 as modified

by paragraph 71.

When applying IAS 21 The Effects of Changes in Foreign Exchange Rates to a group

of insurance contracts that generate cash flows in a foreign currency, an

entity shall treat the group of contracts, including the contractual service

margin, as a monetary item.

In the financial statements of an entity that issues insurance contracts, the

fulfilment cash flows shall not reflect the non-performance risk of that entity

(non-performance risk is defined in IFRS 13 Fair Value Measurement).

Measurement on initial recognition (paragraphs

B36–B95F)

On initial recognition, an entity shall measure a group of insurance

contracts at the total of:

(a) the fulﬁlment cash ﬂows, which comprise:

(i) estimates of future cash ﬂows (paragraphs 33–35);

(ii) an adjustment to reﬂect the time value of money and the

ﬁnancial risks related to the future cash ﬂows, to the extent

that the ﬁnancial risks are not included in the estimates of

the future cash ﬂows (paragraph 36); and

(iii) a risk adjustment for non-ﬁnancial risk (paragraph 37).

(b) the contractual service margin, measured applying paragraphs

38–39.

Estimates of future cash ows (paragraphs B36–B71)

An entity shall include in the measurement of a group of insurance

contracts all the future cash ﬂows within the boundary of each contract in

the group (see paragraph 34). Applying paragraph 24, an entity may

estimate the future cash ﬂows at a higher level of aggregation and then

allocate the resulting fulﬁlment cash ﬂows to individual groups of

contracts. The estimates of future cash ﬂows shall:

(a) incorporate, in an unbiased way, all reasonable and supportable

information available without undue cost or effort about the

amount, timing and uncertainty of those future cash ﬂows (see

paragraphs B37–B41). To do this, an entity shall estimate the

expected value (ie the probability-weighted mean) of the full range

of possible outcomes.

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(b) reﬂect the perspective of the entity, provided that the estimates of

any relevant market variables are consistent with observable market

prices for those variables (see paragraphs B42–B53).

measurement date, including assumptions at that date about the

future (see paragraphs B54–B60).

(d) be explicit—the entity shall estimate the adjustment for non-

ﬁnancial risk separately from the other estimates (see

paragraph B90). The entity also shall estimate the cash ﬂows

separately from the adjustment for the time value of money and

ﬁnancial risk, unless the most appropriate measurement technique

combines these estimates (see paragraph B46).

Cash flows are within the boundary of an insurance contract if they arise from

substantive rights and obligations that exist during the reporting period in

which the entity can compel the policyholder to pay the premiums or in

which the entity has a substantive obligation to provide the policyholder with

insurance contract services (see paragraphs B61–B71). A substantive obligation

to provide insurance contract services ends when:

(a)

the entity has the practical ability to reassess the risks of the particular

policyholder and, as a result, can set a price or level of benefits that

fully reflects those risks; or

(b) both of the following criteria are satisfied:

(i) the entity has the practical ability to reassess the risks of the

portfolio of insurance contracts that contains the contract and,

as a result, can set a price or level of benefits that fully reflects

the risk of that portfolio; and

(ii) the pricing of the premiums up to the date when the risks are

reassessed does not take into account the risks that relate to

periods after the reassessment date.

An entity shall not recognise as a liability or as an asset any amounts relating

to expected premiums or expected claims outside the boundary of the

insurance contract. Such amounts relate to future insurance contracts.

Discount rates (paragraphs B72–B85)

An entity shall adjust the estimates of future cash ﬂows to reﬂect the time

value of money and the ﬁnancial risks related to those cash ﬂows, to the

extent that the ﬁnancial risks are not included in the estimates of cash

ﬂows. The discount rates applied to the estimates of the future cash ﬂows

described in paragraph 33 shall:

(a)

reﬂect the time value of money, the characteristics of the cash ﬂows

and the liquidity characteristics of the insurance contracts;

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(b) be consistent with observable current market prices (if any) for

ﬁnancial instruments with cash ﬂows whose characteristics are

consistent with those of the insurance contracts, in terms of, for

example, timing, currency and liquidity; and

prices but do not affect the future cash ﬂows of the insurance

contracts.

Risk adjustment for non-nancial risk (paragraphs B86–B92)

An entity shall adjust the estimate of the present value of the future cash

ﬂows to reﬂect the compensation that the entity requires for bearing the

uncertainty about the amount and timing of the cash ﬂows that arises

from non-ﬁnancial risk.

Contractual service margin

The contractual service margin is a component of the asset or liability for

the group of insurance contracts that represents the unearned proﬁt the

entity will recognise as it provides insurance contract services in the

future. An entity shall measure the contractual service margin on initial

recognition of a group of insurance contracts at an amount that, unless

paragraph 47 (on onerous contracts) or paragraph B123A (on insurance

revenue relating to paragraph 38(c)(ii)) applies, results in no income or

expenses arising from:

(a) the initial recognition of an amount for the fulﬁlment cash ﬂows,

measured by applying paragraphs 32–37;

(b) any cash ﬂows arising from the contracts in the group at that date;

(i) any asset for insurance acquisition cash ﬂows applying

paragraph 28C; and

(ii) any other asset or liability previously recognised for cash

ﬂows related to the group of contracts as speciﬁed in

paragraph B66A.

For insurance contracts acquired in a transfer of insurance contracts or in a

business combination within the scope of IFRS 3, an entity shall

apply paragraph 38 in accordance with paragraphs B93–B95F.

Subsequent measurement

The carrying amount of a group of insurance contracts at the end of each

reporting period shall be the sum of:

(a)

the liability for remaining coverage comprising:

(i)

the fulﬁlment cash ﬂows related to future service allocated

to the group at that date, measured applying paragraphs

33–37 and B36–B92;

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(ii) the contractual service margin of the group at that date,

measured applying paragraphs 43–46; and

(b) the liability for incurred claims, comprising the fulﬁlment cash ﬂows

related to past service allocated to the group at that date, measured

applying paragraphs 33–37 and B36–B92.

An entity shall recognise income and expenses for the following changes in

the carrying amount of the liability for remaining coverage:

(a) insurance revenue—for the reduction in the liability for remaining

coverage because of services provided in the period, measured

applying paragraphs B120–B124;

(b)

insurance service expenses—for losses on groups of onerous

contracts, and reversals of such losses (see paragraphs 47–52); and

(c)

insurance ﬁnance income or expenses—for the effect of the time

value of money and the effect of ﬁnancial risk as speciﬁed in

paragraph 87.

An entity shall recognise income and expenses for the following changes in

the carrying amount of the liability for incurred claims:

(a)

insurance service expenses—for the increase in the liability because

of claims and expenses incurred in the period, excluding any

investment components;

(b) insurance service expenses—for any subsequent changes in

fulﬁlment cash ﬂows relating to incurred claims and incurred

expenses; and

value of money and the effect of ﬁnancial risk as speciﬁed in

paragraph 87.

Contractual service margin (paragraphs B96–B119B)

The contractual service margin at the end of the reporting period

represents the proﬁt in the group of insurance contracts that has not yet

been recognised in proﬁt or loss because it relates to the future service to

be provided under the contracts in the group.

For insurance contracts without direct participation features, the carrying amount of

the contractual service margin of a group of contracts at the end of the

reporting period equals the carrying amount at the start of the reporting

period adjusted for:

(a) the effect of any new contracts added to the group (see paragraph 28);

(b)

interest accreted on the carrying amount of the contractual service

margin during the reporting period, measured at the discount rates

specified in paragraph B72(b);

(c)

the changes in fulfilment cash flows relating to future service as

specified in paragraphs B96–B100, except to the extent that:

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(i) such increases in the fulfilment cash flows exceed the carrying

amount of the contractual service margin, giving rise to a loss

(see paragraph 48(a)); or

(ii) such decreases in the fulfilment cash flows are allocated to the

loss component of the liability for remaining

coverage applying paragraph 50(b).

(d) the effect of any currency exchange differences on the contractual

service margin; and

(e) the amount recognised as insurance revenue because of the transfer of

insurance contract services in the period, determined by the allocation

of the contractual service margin remaining at the end of the

reporting period (before any allocation) over the current and

remaining coverage period applying paragraph B119.

For insurance contracts with direct participation features (see paragraphs

B101–B118), the carrying amount of the contractual service margin of a group

of contracts at the end of the reporting period equals the carrying amount at

the start of the reporting period adjusted for the amounts specified in

subparagraphs (a)–(e) below. An entity is not required to identify these

adjustments separately. Instead, a combined amount may be determined for

some, or all, of the adjustments. The adjustments are:

(a) the effect of any new contracts added to the group (see paragraph 28);

(b) the change in the amount of the entity’s share of the fair value of the

underlying items (see paragraph B104(b)(i)), except to the extent that:

(i) paragraph B115 (on risk mitigation) applies;

(ii) the decrease in the amount of the entity’s share of the fair

value of the underlying items exceeds the carrying amount of

the contractual service margin, giving rise to a loss (see

paragraph 48); or

(iii) the increase in the amount of the entity’s share of the fair

value of the underlying items reverses the amount in (ii).

specified in paragraphs B101–B118, except to the extent that:

(i) paragraph B115 (on risk mitigation) applies;

(ii) such increases in the fulfilment cash flows exceed the carrying

amount of the contractual service margin, giving rise to a loss

(see paragraph 48); or

(iii) such decreases in the fulfilment cash flows are allocated to the

loss component of the liability for remaining coverage applying

paragraph 50(b).

(d)

the effect of any currency exchange differences arising on the

contractual service margin; and

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(e) the amount recognised as insurance revenue because of the transfer of

insurance contract services in the period, determined by the allocation

of the contractual service margin remaining at the end of the

reporting period (before any allocation) over the current and

remaining coverage period applying paragraph B119.

Some changes in the contractual service margin offset changes in the

fulfilment cash flows for the liability for remaining coverage, resulting in no

change in the total carrying amount of the liability for remaining coverage. To

the extent that changes in the contractual service margin do not offset

changes in the fulfilment cash flows for the liability for remaining coverage,

an entity shall recognise income and expenses for the changes, applying

paragraph 41.

Onerous contracts

An insurance contract is onerous at the date of initial recognition if the

fulfilment cash flows allocated to the contract, any previously recognised

insurance acquisition cash flows and any cash flows arising from the contract

at the date of initial recognition in total are a net outflow. Applying

paragraph 16(a), an entity shall group such contracts separately from

contracts that are not onerous. To the extent that paragraph 17 applies, an

entity may identify the group of onerous contracts by measuring a set of

contracts rather than individual contracts. An entity shall recognise a loss in

profit or loss for the net outflow for the group of onerous contracts, resulting

in the carrying amount of the liability for the group being equal to the

fulfilment cash flows and the contractual service margin of the group being

zero.

A group of insurance contracts becomes onerous (or more onerous) on

subsequent measurement if the following amounts exceed the carrying

amount of the contractual service margin:

(a) unfavourable changes relating to future service in the fulfilment cash

flows allocated to the group arising from changes in estimates of

future cash flows and the risk adjustment for non-financial risk; and

(b) for a group of insurance contracts with direct participation features,

the decrease in the amount of the entity’s share of the fair value of the

underlying items.

Applying paragraphs 44(c)(i), 45(b)(ii) and 45(c)(ii), an entity shall recognise a

loss in profit or loss to the extent of that excess.

An entity shall establish (or increase) a loss component of the liability for

remaining coverage for an onerous group depicting the losses recognised

applying paragraphs 47–48. The loss component determines the amounts that

are presented in profit or loss as reversals of losses on onerous groups and are

consequently excluded from the determination of insurance revenue.

IFRS 17

After an entity has recognised a loss on an onerous group of insurance

contracts, it shall allocate:

(a) the subsequent changes in fulfilment cash flows of the liability for

remaining coverage specified in paragraph 51 on a systematic basis

between:

(i) the loss component of the liability for remaining coverage; and

(ii) the liability for remaining coverage, excluding the loss

component.

(b) solely to the loss component until that component is reduced to zero:

(i)

any subsequent decrease relating to future service in fulfilment

cash flows allocated to the group arising from changes in

estimates of future cash flows and the risk adjustment for non-

financial risk; and

(ii)

any subsequent increases in the amount of the entity’s share of

the fair value of the underlying items.

Applying paragraphs 44(c)(ii), 45(b)(iii) and 45(c)(iii), an entity shall

adjust the contractual service margin only for the excess of the

decrease over the amount allocated to the loss component.

The subsequent changes in the fulfilment cash flows of the liability for

remaining coverage to be allocated applying paragraph 50(a) are:

(a) estimates of the present value of future cash flows for claims and

expenses released from the liability for remaining coverage because of

incurred insurance service expenses;

(b) changes in the risk adjustment for non-financial risk recognised in

profit or loss because of the release from risk; and

The systematic allocation required by paragraph 50(a) shall result in the total

amounts allocated to the loss component in accordance with paragraphs

48–50 being equal to zero by the end of the coverage period of a group of

contracts.

Premium allocation approach

An entity may simplify the measurement of a group of insurance contracts

using the premium allocation approach set out in paragraphs 55–59 if, and

only if, at the inception of the group:

(a) the entity reasonably expects that such simplification would produce a

measurement of the liability for remaining coverage for the group that

would not differ materially from the one that would be produced

applying the requirements in paragraphs 32–52; or

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(b) the coverage period of each contract in the group (including insurance

contract services arising from all premiums within the contract

boundary determined at that date applying paragraph 34) is one year

or less.

The criterion in paragraph 53(a) is not met if at the inception of the group an

entity expects significant variability in the fulfilment cash flows that would

affect the measurement of the liability for remaining coverage during the

period before a claim is incurred. Variability in the fulfilment cash flows

increases with, for example:

(a) the extent of future cash flows relating to any derivatives embedded in

the contracts; and

(b)

the length of the coverage period of the group of contracts.

Using the premium allocation approach, an entity shall measure the liability

for remaining coverage as follows:

(a)

on initial recognition, the carrying amount of the liability is:

(i)

the premiums, if any, received at initial recognition;

(ii)

minus any insurance acquisition cash flows at that date, unless

the entity chooses to recognise the payments as an expense

applying paragraph 59(a); and

(iii) plus or minus any amount arising from the derecognition at

that date of:

1. any asset for insurance acquisition cash flows applying

paragraph 28C; and

2. any other asset or liability previously recognised for

cash flows related to the group of contracts as specified

in paragraph B66A.

(b) at the end of each subsequent reporting period, the carrying amount of

the liability is the carrying amount at the start of the reporting period:

(i) plus the premiums received in the period;

(ii) minus insurance acquisition cash flows; unless the entity

chooses to recognise the payments as an expense applying

paragraph 59(a);

(iii) plus any amounts relating to the amortisation of insurance

acquisition cash flows recognised as an expense in the

reporting period; unless the entity chooses to recognise

insurance acquisition cash flows as an expense applying

paragraph 59(a);

(iv)

plus any adjustment to a financing component, applying

paragraph 56;

(v)

minus the amount recognised as insurance revenue for services

provided in that period (see paragraph B126); and

IFRS 17

(vi) minus any investment component paid or transferred to the

liability for incurred claims.

If insurance contracts in the group have a significant financing component, an

entity shall adjust the carrying amount of the liability for remaining coverage

to reflect the time value of money and the effect of financial risk using the

discount rates specified in paragraph 36, as determined on initial recognition.

The entity is not required to adjust the carrying amount of the liability for

remaining coverage to reflect the time value of money and the effect of

financial risk if, at initial recognition, the entity expects that the time

between providing each part of the services and the related premium due date

is no more than a year.

If at any time during the coverage period, facts and circumstances indicate

that a group of insurance contracts is onerous, an entity shall calculate the

difference between:

(a)

the carrying amount of the liability for remaining coverage

determined applying paragraph 55; and

(b)

the fulfilment cash flows that relate to remaining coverage of the

group, applying paragraphs 33–37 and B36–B92. However, if, in

applying paragraph 59(b), the entity does not adjust the liability for

incurred claims for the time value of money and the effect of financial

risk, it shall not include in the fulfilment cash flows any such

adjustment.

To the extent that the fulfilment cash flows described in paragraph 57(b)

exceed the carrying amount described in paragraph 57(a), the entity shall

recognise a loss in profit or loss and increase the liability for remaining

coverage.

In applying the premium allocation approach, an entity:

(a) may choose to recognise any insurance acquisition cash flows as

expenses when it incurs those costs, provided that the coverage period

of each contract in the group at initial recognition is no more than one

year.

(b) shall measure the liability for incurred claims for the group of

insurance contracts at the fulfilment cash flows relating to incurred

claims, applying paragraphs 33–37 and B36–B92. However, the entity is

not required to adjust future cash flows for the time value of money

and the effect of financial risk if those cash flows are expected to be

paid or received in one year or less from the date the claims are

incurred.

Reinsurance contracts held

The requirements in IFRS 17 are modified for reinsurance contracts held, as

set out in paragraphs 61–70A.

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An entity shall divide portfolios of reinsurance contracts held applying

paragraphs 14–24, except that the references to onerous contracts in those

paragraphs shall be replaced with a reference to contracts on which there is a

net gain on initial recognition. For some reinsurance contracts held, applying

paragraphs 14–24 will result in a group that comprises a single contract.

Recognition

Instead of applying paragraph 25, an entity shall recognise a group of

reinsurance contracts held from the earlier of the following:

(a) the beginning of the coverage period of the group of reinsurance

contracts held; and

(b)

the date the entity recognises an onerous group of underlying

insurance contracts applying paragraph 25(c), if the entity entered into

the related reinsurance contract held in the group of reinsurance

contracts held at or before that date.

Notwithstanding paragraph 62(a), an entity shall delay the recognition of a

group of reinsurance contracts held that provide proportionate coverage until

the date that any underlying insurance contract is initially recognised, if that

date is later than the beginning of the coverage period of the group of

reinsurance contracts held.

Measurement

In applying the measurement requirements of paragraphs 32–36 to

reinsurance contracts held, to the extent that the underlying contracts are

also measured applying those paragraphs, the entity shall use consistent

assumptions to measure the estimates of the present value of the future cash

flows for the group of reinsurance contracts held and the estimates of the

present value of the future cash flows for the group(s) of underlying insurance

contracts. In addition, the entity shall include in the estimates of the present

value of the future cash flows for the group of reinsurance contracts held the

effect of any risk of non-performance by the issuer of the reinsurance

contract, including the effects of collateral and losses from disputes.

Instead of applying paragraph 37, an entity shall determine the risk

adjustment for non-financial risk so that it represents the amount of risk

being transferred by the holder of the group of reinsurance contracts to the

issuer of those contracts.

The requirements of paragraph 38 that relate to determining the contractual

service margin on initial recognition are modified to reflect the fact that for a

group of reinsurance contracts held there is no unearned profit but instead a

net cost or net gain on purchasing the reinsurance. Hence, unless

paragraph 65A applies, on initial recognition the entity shall recognise any net

cost or net gain on purchasing the group of reinsurance contracts held as a

contractual service margin measured at an amount equal to the sum of:

(a)

the fulfilment cash flows;

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(b) the amount derecognised at that date of any asset or liability

previously recognised for cash flows related to the group of

reinsurance contracts held;

(d) any income recognised in profit or loss applying paragraph 66A.

If the net cost of purchasing reinsurance coverage relates to events that

occurred before the purchase of the group of reinsurance contracts held,

notwithstanding the requirements of paragraph B5, the entity shall recognise

such a cost immediately in profit or loss as an expense.

Instead of applying paragraph 44, an entity shall measure the contractual

service margin at the end of the reporting period for a group of reinsurance

contracts held as the carrying amount determined at the start of the reporting

period, adjusted for:

(a)

the effect of any new contracts added to the group (see paragraph 28);

(b)

interest accreted on the carrying amount of the contractual service

margin, measured at the discount rates specified in paragraph B72(b);

(ba)

income recognised in profit or loss in the reporting period applying

paragraph 66A;

(bb) reversals of a loss-recovery component recognised applying

paragraph 66B (see paragraph B119F) to the extent those reversals are

not changes in the fulfilment cash flows of the group of reinsurance

contracts held;

specified in paragraph B72(c), to the extent that the change relates to

future service, unless:

(i) the change results from a change in fulfilment cash flows

allocated to a group of underlying insurance contracts that

does not adjust the contractual service margin for the group of

underlying insurance contracts; or

(ii) the change results from applying paragraphs 57‒58 (on onerous

contracts), if the entity measures a group of underlying

insurance contracts applying the premium allocation approach.

(d) the effect of any currency exchange differences arising on the

contractual service margin; and

(e) the amount recognised in profit or loss because of services received in

the period, determined by the allocation of the contractual service

margin remaining at the end of the reporting period (before any

allocation) over the current and remaining coverage period of the

group of reinsurance contracts held, applying paragraph B119.

65A

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An entity shall adjust the contractual service margin of a group of reinsurance

contracts held, and as a result recognise income, when the entity recognises a

loss on initial recognition of an onerous group of underlying insurance

contracts or on addition of onerous underlying insurance contracts to a group

(see paragraphs B119C‒B119E).

An entity shall establish (or adjust) a loss-recovery component of the asset for

remaining coverage for a group of reinsurance contracts held depicting the

recovery of losses recognised applying paragraphs 66(c)(i)‒(ii) and 66A. The

loss-recovery component determines the amounts that are presented in profit

or loss as reversals of recoveries of losses from reinsurance contracts held and

are consequently excluded from the allocation of premiums paid to the

reinsurer (see paragraph B119F).

Changes in the fulfilment cash flows that result from changes in the risk of

non-performance by the issuer of a reinsurance contract held do not relate to

future service and shall not adjust the contractual service margin.

Reinsurance contracts held cannot be onerous. Accordingly, the requirements

of paragraphs 47–52 do not apply.

Premium allocation approach for reinsurance contracts held

An entity may use the premium allocation approach set out in paragraphs

55–56 and 59 (adapted to reflect the features of reinsurance contracts held

that differ from insurance contracts issued, for example the generation of

expenses or reduction in expenses rather than revenue) to simplify the

measurement of a group of reinsurance contracts held, if at the inception of

the group:

(a) the entity reasonably expects the resulting measurement would not

differ materially from the result of applying the requirements in

paragraphs 63–68; or

(b) the coverage period of each contract in the group of reinsurance

contracts held (including insurance coverage from all premiums

within the contract boundary determined at that date applying

paragraph 34) is one year or less.

An entity cannot meet the condition in paragraph 69(a) if, at the inception of

the group, an entity expects significant variability in the fulfilment cash flows

that would affect the measurement of the asset for remaining coverage during

the period before a claim is incurred. Variability in the fulfilment cash flows

increases with, for example:

(a) the extent of future cash flows relating to any derivatives embedded in

the contracts; and

(b)

the length of the coverage period of the group of reinsurance contracts

held.

66A

66B

IFRS 17

If an entity measures a group of reinsurance contracts held applying the

premium allocation approach, the entity shall apply paragraph 66A by

adjusting the carrying amount of the asset for remaining coverage instead of

adjusting the contractual service margin.

Investment contracts with discretionary participation

features

An investment contract with discretionary participation features does not

include a transfer of significant insurance risk. Consequently, the

requirements in IFRS 17 for insurance contracts are modified for investment

contracts with discretionary participation features as follows:

(a)

the date of initial recognition (see paragraphs 25 and 28) is the date the

entity becomes party to the contract.

(b)

the contract boundary (see paragraph 34) is modified so that cash flows

are within the contract boundary if they result from a substantive

obligation of the entity to deliver cash at a present or future date. The

entity has no substantive obligation to deliver cash if it has the

practical ability to set a price for the promise to deliver the cash that

fully reflects the amount of cash promised and related risks.

and 45(e)) is modified so that the entity shall recognise the contractual

service margin over the duration of the group of contracts in a

systematic way that reflects the transfer of investment services under

the contract.

Modication and derecognition

Modication of an insurance contract

If the terms of an insurance contract are modified, for example by agreement

between the parties to the contract or by a change in regulation, an entity

shall derecognise the original contract and recognise the modified contract as

a new contract, applying IFRS 17 or other applicable Standards if, and only if,

any of the conditions in (a)–(c) are satisfied. The exercise of a right included in

the terms of a contract is not a modification. The conditions are that:

(a) if the modified terms had been included at contract inception:

(i) the modified contract would have been excluded from the

scope of IFRS 17, applying paragraphs 3–8A;

(ii) an entity would have separated different components from the

host insurance contract applying paragraphs 10–13, resulting

in a different insurance contract to which IFRS 17 would have

applied;

(iii)

the modified contract would have had a substantially different

contract boundary applying paragraph 34; or

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(iv) the modified contract would have been included in a different

group of contracts applying paragraphs 14–24.

(b) the original contract met the definition of an insurance contract with

direct participation features, but the modified contract no longer meets

that definition, or vice versa; or

53–59 or paragraphs 69–70 to the original contract, but the

modifications mean that the contract no longer meets the eligibility

criteria for that approach in paragraph 53 or paragraph 69.

If a contract modification meets none of the conditions in paragraph 72, the

entity shall treat changes in cash flows caused by the modification as changes

in estimates of fulfilment cash flows by applying paragraphs 40–52.

Derecognition

An entity shall derecognise an insurance contract when, and only when:

(a)

it is extinguished, ie when the obligation speciﬁed in the insurance

contract expires or is discharged or cancelled; or

(b)

any of the conditions in paragraph 72 are met.

When an insurance contract is extinguished, the entity is no longer at risk

and is therefore no longer required to transfer any economic resources to

satisfy the insurance contract. For example, when an entity buys reinsurance,

it shall derecognise the underlying insurance contract(s) when, and only

when, the underlying insurance contract(s) is or are extinguished.

An entity derecognises an insurance contract from within a group of contracts

by applying the following requirements in IFRS 17:

(a) the fulfilment cash flows allocated to the group are adjusted to

eliminate the present value of the future cash flows and risk

adjustment for non-financial risk relating to the rights and obligations

that have been derecognised from the group, applying paragraphs 40(a)

(i) and 40(b);

(b) the contractual service margin of the group is adjusted for the change

in fulfilment cash flows described in (a), to the extent required by

paragraphs 44(c) and 45(c), unless paragraph 77 applies; and

contract services is adjusted to reflect the coverage units derecognised

from the group, and the amount of the contractual service margin

recognised in profit or loss in the period is based on that adjusted

number applying paragraph B119.

When an entity derecognises an insurance contract because it transfers the

contract to a third party or derecognises an insurance contract and recognises

a new contract applying paragraph 72, the entity shall instead of applying

paragraph 76(b):

IFRS 17

(a) adjust the contractual service margin of the group from which the

contract has been derecognised, to the extent required by

paragraphs 44(c) and 45(c), for the difference between (i) and either (ii)

for contracts transferred to a third party or (iii) for contracts

derecognised applying paragraph 72:

(i) the change in the carrying amount of the group of insurance

contracts resulting from the derecognition of the contract,

applying paragraph 76(a).

(ii) the premium charged by the third party.

(iii) the premium the entity would have charged had it entered into

a contract with equivalent terms as the new contract at the

date of the contract modification, less any additional premium

charged for the modification.

(b)

measure the new contract recognised applying paragraph 72 assuming

that the entity received the premium described in (a)(iii) at the date of

the modification.

Presentation in the statement of nancial position

An entity shall present separately in the statement of ﬁnancial position the

carrying amount of portfolios of:

(a) insurance contracts issued that are assets;

(b) insurance contracts issued that are liabilities;

(d) reinsurance contracts held that are liabilities.

An entity shall include any assets for insurance acquisition cash flows

recognised applying paragraph 28B in the carrying amount of the related

portfolios of insurance contracts issued, and any assets or liabilities for cash

flows related to portfolios of reinsurance contracts held (see paragraph 65(b))

in the carrying amount of the portfolios of reinsurance contracts held.

Recognition and presentation in the statement(s) of nancial

performance (paragraphs B120–B136)

Applying paragraphs 41 and 42, an entity shall disaggregate the amounts

recognised in the statement(s) of proﬁt or loss and other comprehensive

income (hereafter referred to as the statement(s) of ﬁnancial performance)

into:

(a) an insurance service result (paragraphs 83–86), comprising

insurance revenue and insurance service expenses; and

(b)

insurance ﬁnance income or expenses (paragraphs 87–92).

IFRS 17

A896 © IFRS Foundation

An entity is not required to disaggregate the change in the risk adjustment for

non-financial risk between the insurance service result and insurance finance

income or expenses. If an entity does not make such a disaggregation, it shall

include the entire change in the risk adjustment for non-financial risk as part

of the insurance service result.

An entity shall present income or expenses from reinsurance contracts

held separately from the expenses or income from insurance contracts

issued.

Insurance service result

An entity shall present in proﬁt or loss insurance revenue arising from the

groups of insurance contracts issued. Insurance revenue shall depict the

provision of services arising from the group of insurance contracts at an

amount that reﬂects the consideration to which the entity expects to be

entitled in exchange for those services. Paragraphs B120–B127 specify how

an entity measures insurance revenue.

An entity shall present in proﬁt or loss insurance service expenses arising

from a group of insurance contracts issued, comprising incurred claims

(excluding repayments of investment components), other incurred

insurance service expenses and other amounts as described in

paragraph 103(b).

Insurance revenue and insurance service expenses presented in proﬁt or

loss shall exclude any investment components. An entity shall not present

premium information in proﬁt or loss if that information is inconsistent

with paragraph 83.

An entity may present the income or expenses from a group of reinsurance

contracts held (see paragraphs 60–70A), other than insurance finance income

or expenses, as a single amount; or the entity may present separately the

amounts recovered from the reinsurer and an allocation of the premiums paid

that together give a net amount equal to that single amount. If an entity

presents separately the amounts recovered from the reinsurer and an

allocation of the premiums paid, it shall:

(a) treat reinsurance cash flows that are contingent on claims on the

underlying contracts as part of the claims that are expected to be

reimbursed under the reinsurance contract held;

(b) treat amounts from the reinsurer that it expects to receive that are not

contingent on claims of the underlying contracts (for example, some

types of ceding commissions) as a reduction in the premiums to be

paid to the reinsurer;

(ba)

treat amounts recognised relating to recovery of losses applying

paragraphs 66(c)(i)‒(ii) and 66A‒66B as amounts recovered from the

reinsurer; and

(c)

not present the allocation of premiums paid as a reduction in revenue.

IFRS 17

Insurance nance income or expenses (see paragraphs

B128–B136)

Insurance ﬁnance income or expenses comprises the change in the carrying

amount of the group of insurance contracts arising from:

(a) the effect of the time value of money and changes in the time value

of money; and

(b) the effect of ﬁnancial risk and changes in ﬁnancial risk; but

direct participation features that would adjust the contractual

service margin but do not do so when applying paragraphs 45(b)(ii),

45(b)(iii), 45(c)(ii) or 45(c)(iii). These are included in insurance service

expenses.

An entity shall apply:

(a)

paragraph B117A to insurance ﬁnance income or expenses arising

from the application of paragraph B115 (risk mitigation); and

(b)

paragraphs 88 and 89 to all other insurance ﬁnance income or

expenses.

In applying paragraph 87A(b), unless paragraph 89 applies, an entity shall

make an accounting policy choice between:

(a) including insurance ﬁnance income or expenses for the period in

proﬁt or loss; or

(b) disaggregating insurance ﬁnance income or expenses for the period

to include in proﬁt or loss an amount determined by a systematic

allocation of the expected total insurance ﬁnance income or

expenses over the duration of the group of contracts, applying

paragraphs B130–B133.

In applying paragraph 87A(b), for insurance contracts with direct

participation features, for which the entity holds the underlying items, an

entity shall make an accounting policy choice between:

(a) including insurance ﬁnance income or expenses for the period in

proﬁt or loss; or

(b) disaggregating insurance ﬁnance income or expenses for the period

to include in proﬁt or loss an amount that eliminates accounting

mismatches with income or expenses included in proﬁt or loss on

the underlying items held, applying paragraphs B134–B136.

If an entity chooses the accounting policy set out in paragraph 88(b) or in

paragraph 89(b), it shall include in other comprehensive income the

difference between the insurance ﬁnance income or expenses measured on

the basis set out in those paragraphs and the total insurance ﬁnance

income or expenses for the period.

87A

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If an entity transfers a group of insurance contracts or derecognises an

insurance contract applying paragraph 77:

(a) it shall reclassify to proﬁt or loss as a reclassiﬁcation adjustment

(see IAS 1 Presentation of Financial Statements) any remaining amounts

for the group (or contract) that were previously recognised in other

comprehensive income because the entity chose the accounting

policy set out in paragraph 88(b).

(b) it shall not reclassify to proﬁt or loss as a reclassiﬁcation

adjustment (see IAS 1) any remaining amounts for the group (or

contract) that were previously recognised in other comprehensive

income because the entity chose the accounting policy set out in

paragraph 89(b).

Paragraph 30 requires an entity to treat an insurance contract as a monetary

item under IAS 21 for the purpose of translating foreign exchange items into

the entity’s functional currency. An entity includes exchange differences on

changes in the carrying amount of groups of insurance contracts in the

statement of profit or loss, unless they relate to changes in the carrying

amount of groups of insurance contracts included in other comprehensive

income applying paragraph 90, in which case they shall be included in other

comprehensive income.

Disclosure

The objective of the disclosure requirements is for an entity to disclose

information in the notes that, together with the information provided in

the statement of ﬁnancial position, statement(s) of ﬁnancial performance

and statement of cash ﬂows, gives a basis for users of ﬁnancial statements

to assess the effect that contracts within the scope of IFRS 17 have on the

entity’s ﬁnancial position, ﬁnancial performance and cash ﬂows. To

achieve that objective, an entity shall disclose qualitative and quantitative

information about:

(a) the amounts recognised in its ﬁnancial statements for contracts

within the scope of IFRS 17 (see paragraphs 97–116);

(b) the signiﬁcant judgements, and changes in those judgements, made

when applying IFRS 17 (see paragraphs 117–120); and

of IFRS 17 (see paragraphs 121–132).

An entity shall consider the level of detail necessary to satisfy the disclosure

objective and how much emphasis to place on each of the various

requirements. If the disclosures provided, applying paragraphs 97–132, are

not enough to meet the objective in paragraph 93, an entity shall disclose

additional information necessary to meet that objective.

IFRS 17

An entity shall aggregate or disaggregate information so that useful

information is not obscured either by the inclusion of a large amount of

insignificant detail or by the aggregation of items that have different

characteristics.

Paragraphs 29–31 of IAS 1 set out requirements relating to materiality and

aggregation of information. Examples of aggregation bases that might be

appropriate for information disclosed about insurance contracts are:

(a) type of contract (for example, major product lines);

(b) geographical area (for example, country or region); or

(c)

reportable segment, as defined in IFRS 8 Operating Segments.

Explanation of recognised amounts

Of the disclosures required by paragraphs 98–109A, only those in paragraphs

98–100, 102–103, 105‒105B and 109A apply to contracts to which the

premium allocation approach has been applied. If an entity uses the premium

allocation approach, it shall also disclose:

(a)

which of the criteria in paragraphs 53 and 69 it has satisfied;

(b)

whether it makes an adjustment for the time value of money and the

effect of financial risk applying paragraphs 56, 57(b) and 59(b); and

flows applying paragraph 59(a).

An entity shall disclose reconciliations that show how the net carrying

amounts of contracts within the scope of IFRS 17 changed during the period

because of cash flows and income and expenses recognised in the statement(s)

of financial performance. Separate reconciliations shall be disclosed for

insurance contracts issued and reinsurance contracts held. An entity shall

adapt the requirements of paragraphs 100–109 to reflect the features of

reinsurance contracts held that differ from insurance contracts issued; for

example, the generation of expenses or reduction in expenses rather than

revenue.

An entity shall provide enough information in the reconciliations to enable

users of financial statements to identify changes from cash flows and amounts

that are recognised in the statement(s) of financial performance. To comply

with this requirement, an entity shall:

(a) disclose, in a table, the reconciliations set out in paragraphs 100–105B;

and

(b) for each reconciliation, present the net carrying amounts at the

beginning and at the end of the period, disaggregated into a total for

portfolios of contracts that are assets and a total for portfolios of

contracts that are liabilities, that equal the amounts presented in the

statement of financial position applying paragraph 78.

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A900 © IFRS Foundation

An entity shall disclose reconciliations from the opening to the closing

balances separately for each of:

(a) the net liabilities (or assets) for the remaining coverage component,

excluding any loss component.

(b) any loss component (see paragraphs 47–52 and 57–58).

premium allocation approach described in paragraphs

53–59 or 69–70A has been applied, an entity shall disclose separate

reconciliations for:

(i)

the estimates of the present value of the future cash flows; and

(ii)

the risk adjustment for non-financial risk.

For insurance contracts other than those to which the premium allocation

approach described in paragraphs 53–59 or 69–70A has been applied, an entity

shall also disclose reconciliations from the opening to the closing balances

separately for each of:

(a)

the estimates of the present value of the future cash flows;

(b)

the risk adjustment for non-financial risk; and

The objective of the reconciliations in paragraphs 100–101 is to provide

different types of information about the insurance service result.

An entity shall separately disclose in the reconciliations required

in paragraph 100 each of the following amounts related to services, if

applicable:

(a) insurance revenue.

(b) insurance service expenses, showing separately:

(i) incurred claims (excluding investment components) and other

incurred insurance service expenses;

(ii) amortisation of insurance acquisition cash flows;

(iii) changes that relate to past service, ie changes in fulfilment cash

flows relating to the liability for incurred claims; and

(iv) changes that relate to future service, ie losses on onerous

groups of contracts and reversals of such losses.

insurance service expenses (combined with refunds of premiums

unless refunds of premiums are presented as part of the cash flows in

the period described in paragraph 105(a)(i)).

An entity shall separately disclose in the reconciliations required

in paragraph 101 each of the following amounts related to services, if

applicable:

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101

102

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(a) changes that relate to future service, applying paragraphs B96–B118,

showing separately:

(i) changes in estimates that adjust the contractual service margin;

(ii) changes in estimates that do not adjust the contractual service

margin, ie losses on groups of onerous contracts and reversals

of such losses; and

(iii) the effects of contracts initially recognised in the period.

(b) changes that relate to current service, ie:

(i) the amount of the contractual service margin recognised in

profit or loss to reflect the transfer of services;

(ii)

the change in the risk adjustment for non-financial risk that

does not relate to future service or past service; and

(iii)

experience adjustments (see paragraphs B97(c) and B113(a)),

excluding amounts relating to the risk adjustment for non-

financial risk included in (ii).

(c)

changes that relate to past service, ie changes in fulfilment cash

flows relating to incurred claims (see paragraphs B97(b) and B113(a)).

To complete the reconciliations in paragraphs 100–101, an entity shall also

disclose separately each of the following amounts not related to services

provided in the period, if applicable:

(a) cash flows in the period, including:

(i) premiums received for insurance contracts issued (or paid

for reinsurance contracts held);

(ii) insurance acquisition cash flows; and

(iii) incurred claims paid and other insurance service expenses paid

for insurance contracts issued (or recovered under reinsurance

contracts held), excluding insurance acquisition cash flows.

(b) the effect of changes in the risk of non-performance by the issuer of

reinsurance contracts held;

(d) any additional line items that may be necessary to understand the

change in the net carrying amount of the insurance contracts.

An entity shall disclose a reconciliation from the opening to the closing

balance of assets for insurance acquisition cash flows recognised applying

paragraph 28B. An entity shall aggregate information for the reconciliation at

a level that is consistent with that for the reconciliation of insurance

contracts, applying paragraph 98.

An entity shall separately disclose in the reconciliation required by

paragraph 105A any impairment losses and reversals of impairment losses

recognised applying paragraph 28E–28F.

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For insurance contracts issued other than those to which the premium

allocation approach described in paragraphs 53–59 has been applied, an entity

shall disclose an analysis of the insurance revenue recognised in the period

comprising:

(a) the amounts relating to the changes in the liability for remaining

coverage as specified in paragraph B124, separately disclosing:

(i) the insurance service expenses incurred during the period as

specified in paragraph B124(a);

(ii) the change in the risk adjustment for non-financial risk, as

specified in paragraph B124(b);

(iii)

the amount of the contractual service margin recognised in

profit or loss because of the transfer of insurance contract

services in the period, as specified in paragraph B124(c); and

(iv)

other amounts, if any, for example, experience adjustments for

premium receipts other than those that relate to future service

as specified in paragraph B124(d).

(b)

the allocation of the portion of the premiums that relate to the

recovery of insurance acquisition cash flows (see paragraph B125).

For insurance contracts other than those to which the premium allocation

approach described in paragraphs 53–59 or 69–70A has been applied, an entity

shall disclose the effect on the statement of financial position separately for

insurance contracts issued and reinsurance contracts held that are initially

recognised in the period, showing their effect at initial recognition on:

(a) the estimates of the present value of future cash outflows, showing

separately the amount of the insurance acquisition cash flows;

(b) the estimates of the present value of future cash inflows;

(d) the contractual service margin.

In the disclosures required by paragraph 107, an entity shall separately

disclose amounts resulting from:

(a) contracts acquired from other entities in transfers of insurance

contracts or business combinations; and

(b) groups of contracts that are onerous.

For insurance contracts other than those to which the premium allocation

approach described in paragraphs 53–59 or 69–70A has been applied, an entity

shall disclose when it expects to recognise the contractual service margin

remaining at the end of the reporting period in profit or loss quantitatively, in

appropriate time bands. Such information shall be provided separately for

insurance contracts issued and reinsurance contracts held.

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An entity shall disclose quantitatively, in appropriate time bands, when it

expects to derecognise an asset for insurance acquisition cash flows applying

paragraph 28C.

Insurance nance income or expenses

An entity shall disclose and explain the total amount of insurance finance

income or expenses in the reporting period. In particular, an entity shall

explain the relationship between insurance finance income or expenses and

the investment return on its assets, to enable users of its financial statements

to evaluate the sources of finance income or expenses recognised in profit or

loss and other comprehensive income.

For contracts with direct participation features, the entity shall describe the

composition of the underlying items and disclose their fair value.

For contracts with direct participation features, if an entity chooses not to

adjust the contractual service margin for some changes in the fulfilment cash

flows, applying paragraph B115, it shall disclose the effect of that choice on

the adjustment to the contractual service margin in the current period.

For contracts with direct participation features, if an entity changes the basis

of disaggregation of insurance finance income or expenses between profit or

loss and other comprehensive income, applying paragraph B135, it shall

disclose, in the period when the change in approach occurred:

(a) the reason why the entity was required to change the basis of

disaggregation;

(b) the amount of any adjustment for each financial statement line item

affected; and

change applied at the date of the change.

Transition amounts

An entity shall provide disclosures that enable users of financial statements to

identify the effect of groups of insurance contracts measured at the transition

date applying the modified retrospective approach (see paragraphs C6–C19A)

or the fair value approach (see paragraphs C20–C24B) on the contractual

service margin and insurance revenue in subsequent periods. Hence an entity

shall disclose the reconciliation of the contractual service margin

applying paragraph 101(c), and the amount of insurance revenue

applying paragraph 103(a), separately for:

(a) insurance contracts that existed at the transition date to which the

entity has applied the modified retrospective approach;

(b)

insurance contracts that existed at the transition date to which the

entity has applied the fair value approach; and

(c)

all other insurance contracts.

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111

112

113

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For all periods in which disclosures are made applying paragraphs 114(a) or

114(b), to enable users of financial statements to understand the nature and

significance of the methods used and judgements applied in determining the

transition amounts, an entity shall explain how it determined the

measurement of insurance contracts at the transition date.

An entity that chooses to disaggregate insurance finance income or expenses

between profit or loss and other comprehensive income applies

paragraphs C18(b), C19(b), C24(b) and C24(c) to determine the cumulative

difference between the insurance finance income or expenses that would have

been recognised in profit or loss and the total insurance finance income or

expenses at the transition date for the groups of insurance contracts to which

the disaggregation applies. For all periods in which amounts determined

applying these paragraphs exist, the entity shall disclose a reconciliation from

the opening to the closing balance of the cumulative amounts included in

other comprehensive income for financial assets measured at fair value

through other comprehensive income related to the groups of insurance

contracts. The reconciliation shall include, for example, gains or losses

recognised in other comprehensive income in the period and gains or losses

previously recognised in other comprehensive income in previous periods

reclassified in the period to profit or loss.

Signicant judgements in applying IFRS 17

An entity shall disclose the significant judgements and changes in judgements

made in applying IFRS 17. Specifically, an entity shall disclose the inputs,

assumptions and estimation techniques used, including:

(a) the methods used to measure insurance contracts within the scope of

IFRS 17 and the processes for estimating the inputs to those methods.

Unless impracticable, an entity shall also provide quantitative

information about those inputs.

(b) any changes in the methods and processes for estimating inputs used

to measure contracts, the reason for each change, and the type of

contracts affected.

(i) to distinguish changes in estimates of future cash flows arising

from the exercise of discretion from other changes in estimates

of future cash flows for contracts without direct participation

features (see paragraph B98);

(ii) to determine the risk adjustment for non-financial risk,

including whether changes in the risk adjustment for non-

financial risk are disaggregated into an insurance service

component and an insurance finance component or are

presented in full in the insurance service result;

(iii)

to determine discount rates;

(iv)

to determine investment components; and

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(v) to determine the relative weighting of the benefits provided by

insurance coverage and investment-return service or by

insurance coverage and investment-related service (see

paragraphs B119–B119B).

If, applying paragraph 88(b) or paragraph 89(b), an entity chooses to

disaggregate insurance finance income or expenses into amounts presented in

profit or loss and amounts presented in other comprehensive income, the

entity shall disclose an explanation of the methods used to determine the

insurance finance income or expenses recognised in profit or loss.

An entity shall disclose the confidence level used to determine the risk

adjustment for non-financial risk. If the entity uses a technique other than the

confidence level technique for determining the risk adjustment for non-

financial risk, it shall disclose the technique used and the confidence level

corresponding to the results of that technique.

An entity shall disclose the yield curve (or range of yield curves) used to

discount cash flows that do not vary based on the returns on underlying

items, applying paragraph 36. When an entity provides this disclosure in

aggregate for a number of groups of insurance contracts, it shall provide such

disclosures in the form of weighted averages, or relatively narrow ranges.

Nature and extent of risks that arise from contracts within

the scope of IFRS 17

An entity shall disclose information that enables users of its financial

statements to evaluate the nature, amount, timing and uncertainty of future

cash flows that arise from contracts within the scope of IFRS 17. Paragraphs

122–132 contain requirements for disclosures that would normally be

necessary to meet this requirement.

These disclosures focus on the insurance and financial risks that arise from

insurance contracts and how they have been managed. Financial risks

typically include, but are not limited to, credit risk, liquidity risk and market

risk.

If the information disclosed about an entity’s exposure to risk at the end of

the reporting period is not representative of its exposure to risk during the

period, the entity shall disclose that fact, the reason why the period-end

exposure is not representative, and further information that is representative

of its risk exposure during the period.

For each type of risk arising from contracts within the scope of IFRS 17, an

entity shall disclose:

(a) the exposures to risks and how they arise;

(b)

the entity’s objectives, policies and processes for managing the risks

and the methods used to measure the risks; and

(c)

any changes in (a) or (b) from the previous period.

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For each type of risk arising from contracts within the scope of IFRS 17, an

entity shall disclose:

(a) summary quantitative information about its exposure to that risk at

the end of the reporting period. This disclosure shall be based on the

information provided internally to the entity’s key management

personnel.

(b) the disclosures required by paragraphs 127–132, to the extent not

provided applying (a) of this paragraph.

An entity shall disclose information about the effect of the regulatory

frameworks in which it operates; for example, minimum capital requirements

or required interest-rate guarantees. If an entity applies paragraph 20 in

determining the groups of insurance contracts to which it applies the

recognition and measurement requirements of IFRS 17, it shall disclose that

fact.

All types of risk—concentrations of risk

An entity shall disclose information about concentrations of risk arising from

contracts within the scope of IFRS 17, including a description of how the

entity determines the concentrations, and a description of the shared

characteristic that identifies each concentration (for example, the type of

insured event, industry, geographical area, or currency). Concentrations of

financial risk might arise, for example, from interest-rate guarantees that

come into effect at the same level for a large number of contracts.

Concentrations of financial risk might also arise from concentrations of non-

financial risk; for example, if an entity provides product liability protection to

pharmaceutical companies and also holds investments in those companies.

Insurance and market risks—sensitivity analysis

An entity shall disclose information about sensitivities to changes in risk

variables arising from contracts within the scope of IFRS 17. To comply with

this requirement, an entity shall disclose:

(a) a sensitivity analysis that shows how profit or loss and equity would

have been affected by changes in risk variables that were reasonably

possible at the end of the reporting period:

(i) for insurance risk—showing the effect for insurance

contracts issued, before and after risk mitigation

by reinsurance contracts held; and

(ii) for each type of market risk—in a way that explains the

relationship between the sensitivities to changes in risk

variables arising from insurance contracts and those arising

from financial assets held by the entity.

(b)

the methods and assumptions used in preparing the sensitivity

analysis; and

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IFRS 17

used in preparing the sensitivity analysis, and the reasons for such

changes.

If an entity prepares a sensitivity analysis that shows how amounts different

from those specified in paragraph 128(a) are affected by changes in risk

variables and uses that sensitivity analysis to manage risks arising from

contracts within the scope of IFRS 17, it may use that sensitivity analysis in

place of the analysis specified in paragraph 128(a). The entity shall also

disclose:

(a) an explanation of the method used in preparing such a sensitivity

analysis and of the main parameters and assumptions underlying the

information provided; and

(b)

an explanation of the objective of the method used and of any

limitations that may result in the information provided.

Insurance risk—claims development

An entity shall disclose actual claims compared with previous estimates of the

undiscounted amount of the claims (ie claims development). The disclosure

about claims development shall start with the period when the earliest

material claim(s) arose and for which there is still uncertainty about the

amount and timing of the claims payments at the end of the reporting period;

but the disclosure is not required to start more than 10 years before the end of

the reporting period. The entity is not required to disclose information about

the development of claims for which uncertainty about the amount and

timing of the claims payments is typically resolved within one year. An entity

shall reconcile the disclosure about claims development with the aggregate

carrying amount of the groups of insurance contracts, which the entity

discloses applying paragraph 100(c).

Credit risk—other information

For credit risk that arises from contracts within the scope of IFRS 17, an entity

shall disclose:

(a) the amount that best represents its maximum exposure to credit risk

at the end of the reporting period, separately for insurance

contracts issued and reinsurance contracts held; and

(b) information about the credit quality of reinsurance contracts held that

are assets.

Liquidity risk—other information

For liquidity risk arising from contracts within the scope of IFRS 17, an entity

shall disclose:

(a)

a description of how it manages the liquidity risk.

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(b) separate maturity analyses for portfolios of insurance contracts issued

that are liabilities and portfolios of reinsurance contracts held that are

liabilities that show, as a minimum, net cash flows of the portfolios for

each of the first five years after the reporting date and in aggregate

beyond the first five years. An entity is not required to include in these

analyses liabilities for remaining coverage measured

applying paragraphs 55–59 and paragraphs 69–70A. The analyses may

take the form of:

(i) an analysis, by estimated timing, of the remaining contractual

undiscounted net cash flows; or

(ii)

an analysis, by estimated timing, of the estimates of the present

value of the future cash flows.

(c)

the amounts that are payable on demand, explaining the relationship

between such amounts and the carrying amount of the related

portfolios of contracts, if not disclosed applying (b) of this paragraph.

IFRS 17

Appendix A

Dened terms

This appendix is an integral part of IFRS 17 Insurance Contracts.

contractual service

margin

A component of the carrying amount of the asset or liability for

a group of insurance contracts representing the unearned

profit the entity will recognise as it provides insurance

contract services under the insurance contracts in the group.

coverage period

The period during which the entity provides insurance

contract services. This period includes the insurance contract

services that relate to all premiums within the boundary of the

insurance contract.

experience

adjustment

A difference between:

(a) for premium receipts (and any related cash flows such

as insurance acquisition cash ﬂows and insurance

premium taxes)—the estimate at the beginning of the

period of the amounts expected in the period and the

actual cash flows in the period; or

(b) for insurance service expenses (excluding insurance

acquisition expenses)—the estimate at the beginning of

the period of the amounts expected to be incurred in

the period and the actual amounts incurred in the

period.

ﬁnancial risk

The risk of a possible future change in one or more of a

specified interest rate, financial instrument price, commodity

price, currency 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.

fulﬁlment cash ﬂows

An explicit, unbiased and probability-weighted estimate

(ie expected value) of the present value of the future cash

outflows minus the present value of the future cash inflows

that will arise as the entity fulfils insurance contracts,

including a risk adjustment for non-ﬁnancial risk.

group of insurance

contracts

A set of insurance contracts resulting from the division of a

portfolio of insurance contracts into, at a minimum, contracts

issued within a period of no longer than one year and that, at

initial recognition:

(a) are onerous, if any;

(b) have no significant possibility of becoming onerous

subsequently, if any; or

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insurance acquisition

cash ﬂows

Cash flows arising from the costs of selling, underwriting and

starting a group of insurance contracts (issued or expected to

be issued) that are directly attributable to the portfolio of

insurance contracts to which the group belongs. Such cash

flows include cash flows that are not directly attributable to

individual contracts or groups of insurance contracts within

the portfolio.

insurance contract

A contract under which one party (the issuer) 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.

insurance contract

services

The following services that an entity provides to a policyholder

of an insurance contract:

(a) coverage for an insured event (insurance coverage);

(b) for insurance contracts without direct participation

features, the generation of an investment return for the

policyholder, if applicable (investment-return service);

and

features, the management of underlying items on

behalf of the policyholder (investment-related service).

insurance contract

with direct

participation features

An insurance contract for which, at inception:

(a) the contractual terms specify that the policyholder

participates in a share of a clearly identified pool of

underlying items;

(b) the entity expects to pay to the policyholder an amount

equal to a substantial share of the fair value returns on

the underlying items; and

change in the amounts to be paid to the policyholder to

vary with the change in fair value of the underlying

items.

insurance contract

without direct

participation features

An insurance contract that is not an insurance contract with

direct participation features.

insurance risk

Risk, other than ﬁnancial risk, transferred from the holder of a

contract to the issuer.

insured event

An uncertain future event covered by an insurance contract

that creates insurance risk.

investment

component

The amounts that an insurance contract requires the entity to

repay to a policyholder in all circumstances, regardless of

whether an insured event occurs.

IFRS 17

investment contract

with discretionary

participation features

A financial instrument that provides a particular investor with

the contractual right to receive, as a supplement to an amount

not subject to the discretion of the issuer, additional amounts:

(a) that are expected to be a significant portion of the total

contractual benefits;

(b) the timing or amount of which are contractually at the

discretion of the issuer; and

(i) the returns on a specified pool of contracts or a

specified type of contract;

(ii)

realised and/or unrealised investment returns on

a specified pool of assets held by the issuer; or

(iii)

the profit or loss of the entity or fund that issues

the contract.

liability for incurred

claims

An entity’s obligation to:

(a) investigate and pay valid claims for insured events that

have already occurred, including events that have

occurred but for which claims have not been reported,

and other incurred insurance expenses; and

(b) pay amounts that are not included in (a) and that relate

to:

(i) insurance contract services that have already

been provided; or

(ii)

any investment components or other amounts

that are not related to the provision of insurance

contract services and that are not in the

liability for remaining coverage

liability for remaining

coverage

An entity’s obligation to:

(a) investigate and pay valid claims under existing

insurance contracts for insured events that have not

yet occurred (ie the obligation that relates to the

unexpired portion of the insurance coverage); and

(b) pay amounts under existing insurance contracts that

are not included in (a) and that relate to:

(i) insurance contract services not yet provided (ie

the obligations that relate to future provision of

insurance contract services); or

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(ii) any investment components or other amounts

that are not related to the provision of insurance

contract services and that have not been

transferred to the liability for incurred claims.

policyholder

A party that has a right to compensation under an insurance

contract if an insured event occurs.

portfolio of insurance

contracts

Insurance contracts subject to similar risks and managed

together.

reinsurance contract

An insurance contract issued by one entity (the reinsurer) to

compensate another entity for claims arising from one or more

insurance contracts issued by that other entity (underlying

contracts).

risk adjustment for

non-ﬁnancial risk

The compensation an entity requires for bearing the

uncertainty about the amount and timing of the cash flows

that arises from non-financial risk as the entity fulfils

insurance contracts.

underlying items

Items that determine some of the amounts payable to a

policyholder. Underlying items can comprise any items; for

example, a reference portfolio of assets, the net assets of the

entity, or a specified subset of the net assets of the entity.

IFRS 17

Appendix B

Application guidance

This appendix is an integral part of IFRS 17 Insurance Contracts.

This appendix provides guidance on the following:

(a) definition of an insurance contract (see paragraphs B2–B30);

(b) separation of components from an insurance contract (see paragraphs

B31–B35);

(ba)

asset for insurance acquisition cash flows (see paragraphs B35A–B35D);

(c)

measurement (see paragraphs B36–B119F);

(d)

insurance revenue (see paragraphs B120–B127);

(e)

insurance finance income or expenses (see paragraphs B128–B136); and

(f)

interim financial statements (see paragraph B137).

Denition of an insurance contract (Appendix A)

This section provides guidance on the definition of an insurance contract as

specified in Appendix A. It addresses the following:

(a) uncertain future event (see paragraphs B3–B5);

(b) payments in kind (see paragraph B6);

B7–B16);

(d) significant insurance risk (see paragraphs B17–B23);

(e) changes in the level of insurance risk (see paragraphs B24–B25); and

(f) examples of insurance contracts (see paragraphs B26–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) the probability of an insured event occurring;

(b) when the insured event will occur; or

In some insurance contracts, the insured event is the discovery of a loss

during the term of the contract, even if that 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.

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Some insurance contracts cover events that have already occurred but the

financial effect of which is still uncertain. An example is an insurance

contract that provides insurance coverage against an adverse development of

an event that has already occurred. In such contracts, the insured event is the

determination of the ultimate cost of those claims.

Payments in kind

Some insurance contracts require or permit payments to be made in kind. In

such cases, the entity provides goods or services to the policyholder to settle

the entity’s obligation to compensate the policyholder for insured events. An

example is when the entity replaces a stolen article instead of reimbursing the

policyholder for the amount of its loss. Another example is when an entity

uses its own hospitals and medical staff to provide medical services covered by

the insurance contract. Such contracts are insurance contracts, even though

the claims are settled in kind. Fixed-fee service contracts that meet the

conditions specified in paragraph 8 are also insurance contracts, but applying

paragraph 8, an entity may choose to account for them applying either

IFRS 17 or IFRS 15 Revenue from Contracts with Customers.

The distinction between insurance risk and other risks

The definition of an insurance contract requires that one party accepts

significant insurance risk from another party. IFRS 17 defines insurance risk

as ‘risk, other than financial risk, transferred from the holder of a contract to

the issuer’. A contract that exposes the issuer to financial risk without

significant insurance risk is not an insurance contract.

The definition of financial risk in Appendix A refers to financial and non-

financial variables. Examples of non-financial variables not specific to a party

to the contract include an index of earthquake losses in a particular region or

temperatures in a particular city. Financial risk excludes risk from non-

financial variables that are specific to a party to the contract, such as the

occurrence or non-occurrence of a fire that damages or destroys an asset of

that party. Furthermore, the risk of changes in the fair value of a non-

financial asset is not a financial risk if the fair value reflects changes in the

market prices for such assets (ie a financial variable) and the condition of a

specific non-financial asset held by a party to a contract (ie a non-financial

variable). For example, if a guarantee of the residual value of a specific car in

which the policyholder has an insurable interest exposes the guarantor to the

risk of changes in the car’s physical condition, that risk is insurance risk, not

financial risk.

Some contracts expose the issuer to financial risk in addition to significant

insurance risk. For example, many life insurance contracts guarantee a

minimum rate of return to policyholders, creating financial risk, and at the

same time promise death benefits that may significantly exceed the

policyholder’s account balance, creating insurance risk in the form of

mortality risk. Such contracts are insurance contracts.

IFRS 17

Under some contracts, an insured event triggers the payment of an amount

linked to a price index. Such contracts are insurance contracts, provided that

the payment contingent on the insured event could be significant. For

example, a life-contingent annuity linked to a cost-of-living index transfers

insurance risk because the payment is triggered by an uncertain future event

—the survival of the person who receives the annuity. The link to the price

index is a derivative, but it also transfers insurance risk because the number

of payments to which the index applies depends on the survival of the

annuitant. If the resulting transfer of insurance risk is significant, the

derivative meets the definition of an insurance contract, in which case it shall

not be separated from the host contract (see paragraph 11(a)).

Insurance risk is the risk the entity accepts from the policyholder. This means

the entity must accept, from the policyholder, a risk to which the policyholder

was already exposed. Any new risk created by the contract for the entity or

the policyholder is not insurance risk.

The definition of an insurance contract refers to an adverse effect on the

policyholder. This definition does not limit the payment by the entity to an

amount equal to the financial effect of the adverse event. For example, the

definition includes ‘new for old’ insurance coverage that pays the policyholder

an amount that permits the replacement of a used and damaged asset with a

new one. Similarly, the definition does not limit the payment under a life

insurance contract to the financial loss suffered by the deceased’s dependants,

nor does it exclude contracts that specify the payment of predetermined

amounts to quantify the loss caused by death or an accident.

Some contracts require a payment if a specified uncertain future event occurs,

but do not require an adverse effect on the policyholder as a precondition for

the payment. This type of contract is not an insurance contract even if the

holder uses it to mitigate an underlying risk exposure. For example, if the

holder uses a derivative to hedge an underlying financial or non-financial

variable correlated with the cash flows from an asset of the entity, the

derivative is not an insurance contract because the payment is not conditional

on whether the holder is adversely affected by a reduction in the cash flows

from the asset. The definition of an insurance contract refers to an uncertain

future event for which an adverse effect on the policyholder is a contractual

precondition for payment. A contractual precondition does not require the

entity to investigate whether the event actually caused an adverse effect, but

it does permit the entity to deny the payment if it is not satisfied that the

event did cause an adverse effect.

Lapse or persistency risk (the risk that the policyholder will cancel the

contract earlier or later than the issuer had expected when pricing the

contract) is not insurance risk because the resulting variability in the payment

to the policyholder is not contingent on an uncertain future event that

adversely affects the policyholder. Similarly, expense risk (ie the risk of

unexpected increases in the administrative costs associated with the servicing

of a contract, rather than in the costs associated with insured events) is not

insurance risk because an unexpected increase in such expenses does not

adversely affect the policyholder.

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Consequently, a contract that exposes the entity to lapse risk, persistency risk

or expense risk is not an insurance contract unless it also exposes the entity to

significant insurance risk. However, if the entity mitigates its risk by using a

second contract to transfer part of the non-insurance risk to another party,

the second contract exposes the other party to insurance risk.

An entity can accept significant insurance risk from the policyholder only if

the entity is separate from the policyholder. In the case of a mutual entity, the

mutual entity accepts risk from each policyholder and pools that risk.

Although policyholders bear that pooled risk collectively because they hold

the residual interest in the entity, the mutual entity is a separate entity that

has accepted the risk.

Signicant insurance risk

A contract is an insurance contract only if it transfers significant insurance

risk. Paragraphs B7–B16 discuss insurance risk. Paragraphs B18–B23 discuss

the assessment of whether the insurance risk is significant.

Insurance risk is significant if, and only if, an insured event could cause the

issuer to pay additional amounts that are significant in any single scenario,

excluding scenarios that have no commercial substance (ie no discernible

effect on the economics of the transaction). If an insured event could mean

significant additional amounts would be payable in any scenario that has

commercial substance, the condition in the previous sentence can be met even

if the insured event is extremely unlikely, or even if the expected (ie

probability-weighted) present value of the contingent cash flows is a small

proportion of the expected present value of the remaining cash flows from the

insurance contract.

In addition, a contract transfers significant insurance risk only if there is a

scenario that has commercial substance in which the issuer has a possibility

of a loss on a present value basis. However, even if a reinsurance contract does

not expose the issuer to the possibility of a significant loss, that contract is

deemed to transfer significant insurance risk if it transfers to the reinsurer

substantially all the insurance risk relating to the reinsured portions of the

underlying insurance contracts.

The additional amounts described in paragraph B18 are determined on a

present-value basis. If an insurance contract requires payment when an event

with uncertain timing occurs and if the payment is not adjusted for the time

value of money, there may be scenarios in which the present value of the

payment increases, even if its nominal value is fixed. An example is insurance

that provides a fixed death benefit when the policyholder dies, with no expiry

date for the cover (often referred to as whole-life insurance for a fixed

amount). It is certain that the policyholder will die, but the date of death is

uncertain. Payments may be made when an individual policyholder dies

earlier than expected. Because those payments are not adjusted for the time

value of money, significant insurance risk could exist even if there is no

overall loss on the portfolio of contracts. Similarly, contractual terms that

delay timely reimbursement to the policyholder can eliminate significant

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IFRS 17

insurance risk. An entity shall use the discount rates required in paragraph 36

to determine the present value of the additional amounts.

The additional amounts described in paragraph B18 refer to the present value

of amounts that exceed those that would be payable if no insured event had

occurred (excluding scenarios that lack commercial substance). Those

additional amounts include claims handling and assessment costs, but

exclude:

(a) the loss of the ability to charge the policyholder for future service. For

example, in an investment-linked life insurance contract, the death of

the policyholder means that the entity can no longer perform

investment management services and collect a fee for doing so.

However, this economic loss for the entity does not result from

insurance risk, just as a mutual fund manager does not take on

insurance risk in relation to the possible death of a client.

Consequently, the potential loss of future investment management

fees is not relevant when assessing how much insurance risk is

transferred by a contract.

(b)

a waiver, on death, of charges that would be made on cancellation or

surrender. Because the contract brought those charges into existence,

their waiver does not compensate the policyholder for a pre-existing

risk. Consequently, they are not relevant when assessing how much

insurance risk is transferred by a contract.

loss to the holder of the contract. For example, consider a contract that

requires the issuer to pay CU1 million

if an asset suffers physical

damage that causes an insignificant economic loss of CU1 to the

holder. In this contract, the holder transfers the insignificant risk of

losing CU1 to the issuer. At the same time, the contract creates a

non-insurance risk that the issuer will need to pay CU999,999 if the

specified event occurs. Because there is no scenario in which an

insured event causes a significant loss to the holder of the contract, the

issuer does not accept significant insurance risk from the holder and

this contract is not an insurance contract.

(d) possible reinsurance recoveries. The entity accounts for these

separately.

An entity shall assess the significance of insurance risk contract by contract.

Consequently, the insurance risk can be significant even if there is minimal

probability of significant losses for a portfolio or group of contracts.

It follows from paragraphs B18–B22 that, if a contract pays a death benefit

that exceeds the amount payable on survival, the contract is an insurance

contract unless the additional death benefit is not significant (judged by

reference to the contract itself rather than to an entire portfolio of contracts).

As noted in paragraph B21(b), the waiver on death of cancellation or surrender

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1 CU denotes currency unit.

IFRS 17

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charges is not included in this assessment if that waiver does not compensate

the policyholder for a pre-existing risk. Similarly, an annuity contract that

pays out regular sums for the rest of a policyholder’s life is an insurance

contract, unless the aggregate life-contingent payments are insignificant.

Changes in the level of insurance risk

For some contracts, the transfer of insurance risk to the issuer occurs after a

period of time. For example, consider a contract that provides a specified

investment return and includes an option for the policyholder to use the

proceeds of the investment on maturity to buy a life-contingent annuity at the

same rates the entity charges other new annuitants at the time the

policyholder exercises that option. Such a contract transfers insurance risk to

the issuer only after the option is exercised, because the entity remains free to

price the annuity on a basis that reflects the insurance risk that will be

transferred to the entity at that time. Consequently, the cash flows that would

occur on the exercise of the option fall outside the boundary of the contract,

and before exercise there are no insurance cash flows within the boundary of

the contract. However, if the contract specifies the annuity rates (or a basis

other than market rates for setting the annuity rates), the contract transfers

insurance risk to the issuer because the issuer is exposed to the risk that the

annuity rates will be unfavourable to the issuer when the policyholder

exercises the option. In that case, the cash flows that would occur when the

option is exercised are within the boundary of the contract.

A contract that meets the definition of an insurance contract remains an

insurance contract until all rights and obligations are extinguished (ie

discharged, cancelled or expired), unless the contract is derecognised applying

paragraphs 74–77, because of a contract modification.

Examples of insurance contracts

The following are examples of contracts that are insurance contracts if the

transfer of insurance risk is significant:

(a) insurance against theft or damage.

(b) insurance against product liability, professional liability, civil liability

or legal expenses.

uncertain when death will occur or, for some types of life insurance,

whether death will occur within the period covered by the insurance).

(d) life-contingent annuities and pensions, ie contracts that provide

compensation for the uncertain future event—the survival of the

annuitant or pensioner—to provide the annuitant or pensioner with a

level of income that would otherwise be adversely affected by his or

her survival. (Employers’ liabilities that arise from employee benefit

plans and retirement benefit obligations reported by defined benefit

retirement plans are outside the scope of IFRS 17, applying

paragraph 7(b)).

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(e) insurance against disability and medical costs.

(f) surety bonds, fidelity bonds, performance bonds and bid bonds,

ie contracts that compensate the holder if another party fails to

perform a contractual obligation; for example, an obligation to

construct a building.

(g) product warranties. Product warranties issued by another party for

goods sold by a manufacturer, dealer or retailer are within the scope of

IFRS 17. However, product warranties issued directly by a

manufacturer, dealer or retailer are outside the scope of IFRS 17

applying paragraph 7(a), and are instead within the scope of IFRS 15 or

IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

(h)

title insurance (insurance against the discovery of defects in the title to

land or buildings that were not apparent when the insurance contract

was issued). In this case, the insured event is the discovery of a defect

in the title, not the defect itself.

(i)

travel insurance (compensation in cash or in kind to policyholders for

losses suffered in advance of, or during, travel).

(j)

catastrophe bonds that provide for reduced payments of principal,

interest or both, if a specified event adversely affects the issuer of the

bond (unless the specified event does not create significant insurance

risk; for example, if the event is a change in an interest rate or a

foreign exchange rate).

(k) insurance swaps and other contracts that require a payment depending

on changes in climatic, geological or other physical variables that are

specific to a party to the contract.

The following are examples of items that are not insurance contracts:

(a) investment contracts that have the legal form of an insurance contract

but do not transfer significant insurance risk to the issuer. For

example, life insurance contracts in which the entity bears no

significant mortality or morbidity risk are not insurance contracts;

such contracts are financial instruments or service contracts—

see paragraph B28. Investment contracts with discretionary

participation features do not meet the definition of an insurance

contract; however, they are within the scope of IFRS 17 provided they

are issued by an entity that also issues insurance contracts,

applying paragraph 3(c).

(b) contracts that have the legal form of insurance, but return all

significant insurance risk to the policyholder through non-cancellable

and enforceable mechanisms that adjust future payments by the

policyholder to the issuer as a direct result of insured losses. For

example, some financial reinsurance contracts or some group

contracts return all significant insurance risk to the policyholders;

such contracts are normally financial instruments or service contracts

(see paragraph B28).

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A920 © IFRS Foundation

insurance). In such situations, there is no insurance contract because

there is no agreement with another party. Thus, if an entity issues an

insurance contract to its parent, subsidiary or fellow subsidiary, there

is no insurance contract in the consolidated financial statements

because there is no contract with another party. However, for the

individual or separate financial statements of the issuer or holder,

there is an insurance contract.

(d) contracts (such as gambling contracts) that require a payment if a

specified uncertain future event occurs, but do not require, as a

contractual precondition for payment, the event to adversely affect the

policyholder. However, this does not exclude from the definition of an

insurance contract contracts that specify a predetermined payout to

quantify the loss caused by a specified event such as a death or an

accident (see paragraph B12).

(e)

derivatives that expose a party to financial risk but not insurance risk,

because the derivatives require that party to make (or give them the

right to receive) payment solely based on the changes in one or more of

a specified interest rate, a financial instrument price, a commodity

price, a foreign exchange rate, an index of prices or rates, a credit

rating or a credit index or any other variable, provided that, in the case

of a non-financial variable, the variable is not specific to a party to the

contract.

(f) credit-related guarantees that require payments even if the holder has

not incurred a loss on the failure of the debtor to make payments

when due; such contracts are accounted for applying IFRS 9 Financial

Instruments (see paragraph B29).

(g) contracts that require a payment that depends on a climatic, geological

or any other physical variable not specific to a party to the contract

(commonly described as weather derivatives).

(h) contracts that provide for reduced payments of principal, interest or

both, that depend on a climatic, geological or any other physical

variable, the effect of which is not specific to a party to the contract

(commonly referred to as catastrophe bonds).

An entity shall apply other applicable Standards, such as IFRS 9 and IFRS 15,

to the contracts described in paragraph B27.

The credit-related guarantees and credit insurance contracts discussed in

paragraph B27(f) can have various legal forms, such as that of a guarantee,

some types of letters of credit, a credit default contract or an insurance

contract. Those contracts are insurance contracts if they require the issuer to

make specified payments to reimburse the holder for a loss that the holder

incurs because a specified debtor fails to make payment when due to the

policyholder applying the original or modified terms of a debt instrument.

However, such insurance contracts are excluded from the scope of IFRS 17

unless the issuer has previously asserted explicitly that it regards the

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IFRS 17

contracts as insurance contracts and has used accounting applicable to

insurance contracts (see paragraph 7(e)).

Credit-related guarantees and credit insurance contracts that require

payment, even if the policyholder has not incurred a loss on the failure of the

debtor to make payments when due, are outside the scope of IFRS 17 because

they do not transfer significant insurance risk. Such contracts include those

that require payment:

(a) regardless of whether the counterparty holds the underlying debt

instrument; or

(b) on a change in the credit rating or the credit index, rather than on the

failure of a specified debtor to make payments when due.

Separating components from an insurance contract (paragraphs

10–13)

Investment components (paragraph 11(b))

Paragraph 11(b) requires an entity to separate a distinct investment

component from the host insurance contract. An investment component is

distinct if, and only if, both the following conditions are met:

(a) the investment component and the insurance component are not

highly interrelated.

(b) a contract with equivalent terms is sold, or could be sold, separately in

the same market or the same jurisdiction, either by entities that issue

insurance contracts or by other parties. The entity shall take into

account all information reasonably available in making this

determination. The entity is not required to undertake an exhaustive

search to identify whether an investment component is sold

separately.

An investment component and an insurance component are highly

interrelated if, and only if:

(a) the entity is unable to measure one component without considering

the other. Thus, if the value of one component varies according to the

value of the other, an entity shall apply IFRS 17 to account for the

combined investment and insurance component; or

(b) the policyholder is unable to benefit from one component unless the

other is also present. Thus, if the lapse or maturity of one component

in a contract causes the lapse or maturity of the other, the entity shall

apply IFRS 17 to account for the combined investment component and

insurance component.

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Promises to transfer distinct goods or services other than

insurance contract services (paragraph 12)

Paragraph 12 requires an entity to separate from an insurance contract a

promise to transfer distinct goods or services other than insurance contract

services to a policyholder. For the purpose of separation, an entity shall not

consider activities that an entity must undertake to fulfil a contract unless the

entity transfers a good or service other than insurance contract services to the

policyholder as those activities occur. For example, an entity may need to

perform various administrative tasks to set up a contract. The performance of

those tasks does not transfer a service to the policyholder as the tasks are

performed.

A good or service other than an insurance contract service promised to a

policyholder is distinct if the policyholder can benefit from the good or service

either on its own or together with other resources readily available to the

policyholder. Readily available resources are goods or services that are sold

separately (by the entity or by another entity), or resources that the

policyholder has already got (from the entity or from other transactions or

events).

A good or service other than an insurance contract service that is promised to

the policyholder is not distinct if:

(a) the cash flows and risks associated with the good or service are highly

interrelated with the cash flows and risks associated with the

insurance components in the contract; and

(b) the entity provides a significant service in integrating the good or

service with the insurance components.

Insurance acquisition cash ows (paragraphs 28A‒28F)

To apply paragraph 28A, an entity shall use a systematic and rational method

to allocate:

(a) insurance acquisition cash flows directly attributable to a group of

insurance contracts:

(i) to that group; and

(ii) to groups that will include insurance contracts that are

expected to arise from renewals of the insurance contracts in

that group.

(b) insurance acquisition cash flows directly attributable to a portfolio of

insurance contracts, other than those in (a), to groups of contracts in

the portfolio.

At the end of each reporting period, an entity shall revise amounts allocated

as specified in paragraph B35A to reflect any changes in assumptions that

determine the inputs to the method of allocation used. An entity shall not

change amounts allocated to a group of insurance contracts after all contracts

have been added to the group (see paragraph B35C).

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IFRS 17

An entity might add insurance contracts to a group of insurance contracts

across more than one reporting period (see paragraph 28). In those

circumstances, an entity shall derecognise the portion of an asset for

insurance acquisition cash flows that relates to insurance contracts added to

the group in that period and continue to recognise an asset for insurance

acquisition cash flows to the extent that the asset relates to insurance

contracts expected to be added to the group in a future reporting period.

To apply paragraph 28E:

(a) an entity shall recognise an impairment loss in profit or loss and

reduce the carrying amount of an asset for insurance acquisition cash

flows so that the carrying amount of the asset does not exceed the

expected net cash inflow for the related group of insurance contracts,

determined applying paragraph 32(a).

(b)

when an entity allocates insurance acquisition cash flows to groups of

insurance contracts applying paragraph B35A(a)(ii), the entity shall

recognise an impairment loss in profit or loss and reduce the carrying

amount of the related assets for insurance acquisition cash flows to the

extent that:

(i)

the entity expects those insurance acquisition cash flows to

exceed the net cash inflow for the expected renewals,

determined applying paragraph 32(a); and

(ii) the excess determined applying (b)(i) has not already been

recognised as an impairment loss applying (a).

Measurement (paragraphs 29–71)

Estimates of future cash ows (paragraphs 33–35)

This section addresses:

(a) unbiased use of all reasonable and supportable information available

without undue cost or effort (see paragraphs B37–B41);

(b) market variables and non-market variables (see paragraphs B42–B53);

(d) cash flows within the contract boundary (see paragraphs B61–B71).

Unbiased use of all reasonable and supportable information

available without undue cost or effort (paragraph 33(a))

The objective of estimating future cash flows is to determine the expected

value, or probability-weighted mean, of the full range of possible outcomes,

considering all reasonable and supportable information available at the

reporting date without undue cost or effort. Reasonable and supportable

information available at the reporting date without undue cost or effort

includes information about past events and current conditions, and forecasts

of future conditions (see paragraph B41). Information available from an

B35C

B35D

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entity’s own information systems is considered to be available without undue

cost or effort.

The starting point for an estimate of the cash flows is a range of scenarios that

reflects the full range of possible outcomes. Each scenario specifies the

amount and timing of the cash flows for a particular outcome, and the

estimated probability of that outcome. The cash flows from each scenario are

discounted and weighted by the estimated probability of that outcome to

derive an expected present value. Consequently, the objective is not to develop

a most likely outcome, or a more-likely-than-not outcome, for future cash

flows.

When considering the full range of possible outcomes, the objective is to

incorporate all reasonable and supportable information available without

undue cost or effort in an unbiased way, rather than to identify every possible

scenario. In practice, developing explicit scenarios is unnecessary if the

resulting estimate is consistent with the measurement objective of

considering all reasonable and supportable information available without

undue cost or effort when determining the mean. For example, if an entity

estimates that the probability distribution of outcomes is broadly consistent

with a probability distribution that can be described completely with a small

number of parameters, it will be sufficient to estimate the smaller number of

parameters. Similarly, in some cases, relatively simple modelling may give an

answer within an acceptable range of precision, without the need for many

detailed simulations. However, in some cases, the cash flows may be driven by

complex underlying factors and may respond in a non-linear fashion to

changes in economic conditions. This may happen if, for example, the cash

flows reflect a series of interrelated options that are implicit or explicit. In

such cases, more sophisticated stochastic modelling is likely to be necessary to

satisfy the measurement objective.

The scenarios developed shall include unbiased estimates of the probability of

catastrophic losses under existing contracts. Those scenarios exclude possible

claims under possible future contracts.

An entity shall estimate the probabilities and amounts of future payments

under existing contracts on the basis of information obtained including:

(a) information about claims already reported by policyholders.

(b) other information about the known or estimated characteristics of the

insurance contracts.

necessary with historical data from other sources. Historical data is

adjusted to reflect current conditions, for example, if:

(i)

the characteristics of the insured population differ (or will

differ, for example, because of adverse selection) from those of

the population that has been used as a basis for the historical

data;

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IFRS 17

(ii) there are indications that historical trends will not continue,

that new trends will emerge or that economic, demographic

and other changes may affect the cash flows that arise from the

existing insurance contracts; or

(iii) there have been changes in items such as underwriting

procedures and claims management procedures that may affect

the relevance of historical data to the insurance contracts.

(d) current price information, if available, for reinsurance contracts and

other financial instruments (if any) covering similar risks, such as

catastrophe bonds and weather derivatives, and recent market prices

for transfers of insurance contracts. This information shall be adjusted

to reflect the differences between the cash flows that arise from those

reinsurance contracts or other financial instruments, and the cash

flows that would arise as the entity fulfils the underlying contracts

with the policyholder.

Market variables and non-market variables

IFRS 17 identifies two types of variables:

(a)

market variables—variables that can be observed in, or derived directly

from, markets (for example, prices of publicly traded securities and

interest rates); and

(b) non-market variables—all other variables (for example, the frequency

and severity of insurance claims and mortality).

Market variables will generally give rise to financial risk (for example,

observable interest rates) and non-market variables will generally give rise to

non-financial risk (for example, mortality rates). However, this will not always

be the case. For example, there may be assumptions that relate to financial

risks for which variables cannot be observed in, or derived directly from,

markets (for example, interest rates that cannot be observed in, or derived

directly from, markets).

Market variables (paragraph 33(b))

Estimates of market variables shall be consistent with observable market

prices at the measurement date. An entity shall maximise the use of

observable inputs and shall not substitute its own estimates for observable

market data except as described in paragraph 79 of IFRS 13 Fair Value

Measurement. Consistent with IFRS 13, if variables need to be derived (for

example, because no observable market variables exist) they shall be as

consistent as possible with observable market variables.

Market prices blend a range of views about possible future outcomes and also

reflect the risk preferences of market participants. Consequently, they are not

a single-point forecast of the future outcome. If the actual outcome differs

from the previous market price, this does not mean that the market price was

‘wrong’.

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An important application of market variables is the notion of a replicating

asset or a replicating portfolio of assets. A replicating asset is one whose cash

flows exactly match, in all scenarios, the contractual cash flows of a group of

insurance contracts in amount, timing and uncertainty. In some cases, a

replicating asset may exist for some of the cash flows that arise from a group

of insurance contracts. The fair value of that asset reflects both the expected

present value of the cash flows from the asset and the risk associated with

those cash flows. If a replicating portfolio of assets exists for some of the cash

flows that arise from a group of insurance contracts, the entity can use the

fair value of those assets to measure the relevant fulfilment cash flows instead

of explicitly estimating the cash flows and discount rate.

IFRS 17 does not require an entity to use a replicating portfolio technique.

However, if a replicating asset or portfolio does exist for some of the cash

flows that arise from insurance contracts and an entity chooses to use a

different technique, the entity shall satisfy itself that a replicating portfolio

technique would be unlikely to lead to a materially different measurement of

those cash flows.

Techniques other than a replicating portfolio technique, such as stochastic

modelling techniques, may be more robust or easier to implement if there are

significant interdependencies between cash flows that vary based on returns

on assets and other cash flows. Judgement is required to determine the

technique that best meets the objective of consistency with observable market

variables in specific circumstances. In particular, the technique used must

result in the measurement of any options and guarantees included in the

insurance contracts being consistent with observable market prices (if any) for

such options and guarantees.

Non-market variables

Estimates of non-market variables shall reflect all reasonable and supportable

evidence available without undue cost or effort, both external and internal.

Non-market external data (for example, national mortality statistics) may have

more or less relevance than internal data (for example, internally developed

mortality statistics), depending on the circumstances. For example, an entity

that issues life insurance contracts shall not rely solely on national mortality

statistics, but shall consider all other reasonable and supportable internal and

external sources of information available without undue cost or effort when

developing unbiased estimates of probabilities for mortality scenarios for its

insurance contracts. In developing those probabilities, an entity shall give

more weight to the more persuasive information. For example:

(a) internal mortality statistics may be more persuasive than national

mortality data if national data is derived from a large population that

is not representative of the insured population. This might be because,

for example, the demographic characteristics of the insured

population could significantly differ from those of the national

population, meaning that an entity would need to place more weight

on the internal data and less weight on the national statistics.

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IFRS 17

(b) conversely, if the internal statistics are derived from a small

population with characteristics that are believed to be close to those of

the national population, and the national statistics are current, an

entity shall place more weight on the national statistics.

Estimated probabilities for non-market variables shall not contradict

observable market variables. For example, estimated probabilities for future

inflation rate scenarios shall be as consistent as possible with probabilities

implied by market interest rates.

In some cases, an entity may conclude that market variables vary

independently of non-market variables. If so, the entity shall consider

scenarios that reflect the range of outcomes for the non-market variables,

with each scenario using the same observed value of the market variable.

In other cases, market variables and non-market variables may be correlated.

For example, there may be evidence that lapse rates (a non-market variable)

are correlated with interest rates (a market variable). Similarly, there may be

evidence that claim levels for house or car insurance are correlated with

economic cycles and therefore with interest rates and expense amounts. The

entity shall ensure that the probabilities for the scenarios and the risk

adjustments for the non-financial risk that relates to the market variables are

consistent with the observed market prices that depend on those market

variables.

Using current estimates (paragraph 33(c))

In estimating each cash flow scenario and its probability, an entity shall use

all reasonable and supportable information available without undue cost or

effort. An entity shall review the estimates that it made at the end of the

previous reporting period and update them. In doing so, an entity shall

consider whether:

(a) the updated estimates faithfully represent the conditions at the end of

the reporting period.

(b) the changes in estimates faithfully represent the changes in conditions

during the period. For example, suppose that estimates were at one

end of a reasonable range at the beginning of the period. If the

conditions have not changed, shifting the estimates to the other end of

the range at the end of the period would not faithfully represent what

has happened during the period. If an entity’s most recent estimates

are different from its previous estimates, but conditions have not

changed, it shall assess whether the new probabilities assigned to each

scenario are justified. In updating its estimates of those probabilities,

the entity shall consider both the evidence that supported its previous

estimates and all newly available evidence, giving more weight to the

more persuasive evidence.

The probability assigned to each scenario shall reflect the conditions at the

end of the reporting period. Consequently, applying IAS 10 Events after the

Reporting Period, an event occurring after the end of the reporting period that

resolves an uncertainty that existed at the end of the reporting period does

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A928 © IFRS Foundation

not provide evidence of the conditions that existed at that date. For example,

there may be a 20 per cent probability at the end of the reporting period that a

major storm will strike during the remaining six months of an insurance

contract. After the end of the reporting period but before the financial

statements are authorised for issue, a major storm strikes. The fulfilment cash

flows under that contract shall not reflect the storm that, with hindsight, is

known to have occurred. Instead, the cash flows included in the measurement

include the 20 per cent probability apparent at the end of the reporting period

(with disclosure applying IAS 10 that a non-adjusting event occurred after the

end of the reporting period).

Current estimates of expected cash flows are not necessarily identical to the

most recent actual experience. For example, suppose that mortality

experience in the reporting period was 20 per cent worse than the previous

mortality experience and previous expectations of mortality experience.

Several factors could have caused the sudden change in experience, including:

(a)

lasting changes in mortality;

(b)

changes in the characteristics of the insured population (for example,

changes in underwriting or distribution, or selective lapses by

policyholders in unusually good health);

(c)

random fluctuations; or

(d) identifiable non-recurring causes.

An entity shall investigate the reasons for the change in experience and

develop new estimates of cash flows and probabilities in the light of the most

recent experience, the earlier experience and other information. The result for

the example in paragraph B56 would typically be that the expected present

value of death benefits changes, but not by as much as 20 per cent. In the

example in paragraph B56, if mortality rates continue to be significantly

higher than the previous estimates for reasons that are expected to continue,

the estimated probability assigned to the high-mortality scenarios will

increase.

Estimates of non-market variables shall include information about the current

level of insured events and information about trends. For example, mortality

rates have consistently declined over long periods in many countries. The

determination of the fulfilment cash flows reflects the probabilities that

would be assigned to each possible trend scenario, taking account of all

reasonable and supportable information available without undue cost or

effort.

Similarly, if cash flows allocated to a group of insurance contracts are

sensitive to inflation, the determination of the fulfilment cash flows shall

reflect current estimates of possible future inflation rates. Because inflation

rates are likely to be correlated with interest rates, the measurement of

fulfilment cash flows shall reflect the probabilities for each inflation scenario

in a way that is consistent with the probabilities implied by the market

interest rates used in estimating the discount rate (see paragraph B51).

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When estimating the cash flows, an entity shall take into account current

expectations of future events that might affect those cash flows. The entity

shall develop cash flow scenarios that reflect those future events, as well as

unbiased estimates of the probability of each scenario. However, an entity

shall not take into account current expectations of future changes in

legislation that would change or discharge the present obligation or create

new obligations under the existing insurance contract until the change in

legislation is substantively enacted.

Cash ows within the contract boundary (paragraph 34)

Estimates of cash flows in a scenario shall include all cash flows within the

boundary of an existing contract and no other cash flows. An entity shall

apply paragraph 2 in determining the boundary of an existing contract.

Many insurance contracts have features that enable policyholders to take

actions that change the amount, timing, nature or uncertainty of the amounts

they will receive. Such features include renewal options, surrender options,

conversion options and options to stop paying premiums while still receiving

benefits under the contracts. The measurement of a group of insurance

contracts shall reflect, on an expected value basis, the entity’s current

estimates of how the policyholders in the group will exercise the options

available, and the risk adjustment for non-financial risk shall reflect the

entity’s current estimates of how the actual behaviour of the policyholders

may differ from the expected behaviour. This requirement to determine the

expected value applies regardless of the number of contracts in a group; for

example it applies even if the group comprises a single contract. Thus, the

measurement of a group of insurance contracts shall not assume a 100 per

cent probability that policyholders will:

(a) surrender their contracts, if there is some probability that some of the

policyholders will not; or

(b) continue their contracts, if there is some probability that some of the

policyholders will not.

When an issuer of an insurance contract is required by the contract to renew

or otherwise continue the contract, it shall apply paragraph 34 to assess

whether premiums and related cash flows that arise from the renewed

contract are within the boundary of the original contract.

Paragraph 34 refers to an entity’s practical ability to set a price at a future

date (a renewal date) that fully reflects the risks in the contract from that

date. An entity has that practical ability in the absence of constraints that

prevent the entity from setting the same price it would for a new contract

with the same characteristics as the existing contract issued on that date, or if

it can amend the benefits to be consistent with the price it will charge.

Similarly, an entity has that practical ability to set a price when it can reprice

an existing contract so that the price reflects overall changes in the risks in a

portfolio of insurance contracts, even if the price set for each individual

policyholder does not reflect the change in risk for that specific policyholder.

When assessing whether the entity has the practical ability to set a price that

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fully reflects the risks in the contract or portfolio, it shall consider all the

risks that it would consider when underwriting equivalent contracts on the

renewal date for the remaining service. In determining the estimates of future

cash flows at the end of a reporting period, an entity shall reassess the

boundary of an insurance contract to include the effect of changes in

circumstances on the entity’s substantive rights and obligations.

Cash flows within the boundary of an insurance contract are those that relate

directly to the fulfilment of the contract, including cash flows for which the

entity has discretion over the amount or timing. The cash flows within the

boundary include:

(a)

premiums (including premium adjustments and instalment premiums)

from a policyholder and any additional cash flows that result from

those premiums.

(b)

payments to (or on behalf of) a policyholder, including claims that

have already been reported but have not yet been paid (ie reported

claims), incurred claims for events that have occurred but for which

claims have not been reported and all future claims for which the

entity has a substantive obligation (see paragraph 34).

(c)

payments to (or on behalf of) a policyholder that vary depending on

returns on underlying items.

(d) payments to (or on behalf of) a policyholder resulting from derivatives,

for example, options and guarantees embedded in the contract, to the

extent that those options and guarantees are not separated from the

insurance contract (see paragraph 11(a)).

(e) an allocation of insurance acquisition cash flows attributable to the

portfolio to which the contract belongs.

(f) claim handling costs (ie the costs the entity will incur in investigating,

processing and resolving claims under existing insurance contracts,

including legal and loss-adjusters’ fees and internal costs of

investigating claims and processing claim payments).

(g) costs the entity will incur in providing contractual benefits paid in

kind.

(h) policy administration and maintenance costs, such as costs of

premium billing and handling policy changes (for example,

conversions and reinstatements). Such costs also include recurring

commissions that are expected to be paid to intermediaries if a

particular policyholder continues to pay the premiums within the

boundary of the insurance contract.

(i)

transaction-based taxes (such as premium taxes, value added taxes and

goods and services taxes) and levies (such as fire service levies and

guarantee fund assessments) that arise directly from existing

insurance contracts, or that can be attributed to them on a reasonable

and consistent basis.

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(j) payments by the insurer in a fiduciary capacity to meet tax obligations

incurred by the policyholder, and related receipts.

(k) potential cash inflows from recoveries (such as salvage and

subrogation) on future claims covered by existing insurance contracts

and, to the extent that they do not qualify for recognition as separate

assets, potential cash inflows from recoveries on past claims.

(ka) costs the entity will incur:

(i) performing investment activity, to the extent the entity

performs that activity to enhance benefits from insurance

coverage for policyholders. Investment activities enhance

benefits from insurance coverage if the entity performs those

activities expecting to generate an investment return from

which policyholders will benefit if an insured event occurs.

(ii)

providing investment-return service to policyholders of

insurance contracts without direct participation features (see

paragraph B119B).

(iii)

providing investment-related service to policyholders of

insurance contracts with direct participation features.

(l) an allocation of fixed and variable overheads (such as the costs of

accounting, human resources, information technology and support,

building depreciation, rent, and maintenance and utilities) directly

attributable to fulfilling insurance contracts. Such overheads are

allocated to groups of contracts using methods that are systematic and

rational, and are consistently applied to all costs that have similar

characteristics.

(m) any other costs specifically chargeable to the policyholder under the

terms of the contract.

The following cash flows shall not be included when estimating the cash flows

that will arise as the entity fulfils an existing insurance contract:

(a) investment returns. Investments are recognised, measured and

presented separately.

(b) cash flows (payments or receipts) that arise under reinsurance

contracts held. Reinsurance contracts held are recognised, measured

and presented separately.

flows outside the boundary of existing contracts (see

paragraphs 34–35).

(d)

cash flows relating to costs that cannot be directly attributed to the

portfolio of insurance contracts that contain the contract, such as

some product development and training costs. Such costs are

recognised in profit or loss when incurred.

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(e) cash flows that arise from abnormal amounts of wasted labour or

other resources that are used to fulfil the contract. Such costs are

recognised in profit or loss when incurred.

(f) income tax payments and receipts the insurer does not pay or receive

in a fiduciary capacity or that are not specifically chargeable to the

policyholder under the terms of the contract.

(g) cash flows between different components of the reporting entity, such

as policyholder funds and shareholder funds, if those cash flows do not

change the amount that will be paid to the policyholders.

(h) cash flows arising from components separated from the insurance

contract and accounted for using other applicable Standards (see

paragraphs 10–13).

Before the recognition of a group of insurance contracts, an entity might be

required to recognise an asset or liability for cash flows related to the group of

insurance contracts other than insurance acquisition cash flows either

because of the occurrence of the cash flows or because of the requirements of

another IFRS Standard. Cash flows are related to the group of insurance

contracts if those cash flows would have been included in the fulfilment cash

flows at the date of initial recognition of the group had they been paid or

received after that date. To apply paragraph 38(c)(ii) an entity shall

derecognise such an asset or liability to the extent that the asset or liability

would not be recognised separately from the group of insurance contracts if

the cash flow or the application of the IFRS Standard occurred at the date of

initial recognition of the group of insurance contracts.

Contracts with cash ows that affect or are affected by cash ows to

policyholders of other contracts

Some insurance contracts affect the cash flows to policyholders of other

contracts by requiring:

(a) the policyholder to share with policyholders of other contracts the

returns on the same specified pool of underlying items; and

(b) either:

(i) the policyholder to bear a reduction in their share of the

returns on the underlying items because of payments to

policyholders of other contracts that share in that pool,

including payments arising under guarantees made to

policyholders of those other contracts; or

(ii) policyholders of other contracts to bear a reduction in their

share of returns on the underlying items because of payments

to the policyholder, including payments arising from

guarantees made to the policyholder.

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Sometimes, such contracts will affect the cash flows to policyholders of

contracts in other groups. The fulfilment cash flows of each group reflect the

extent to which the contracts in the group cause the entity to be affected by

expected cash flows, whether to policyholders in that group or to

policyholders in another group. Hence the fulfilment cash flows for a group:

(a) include payments arising from the terms of existing contracts to

policyholders of contracts in other groups, regardless of whether those

payments are expected to be made to current or future policyholders;

and

(b) exclude payments to policyholders in the group that, applying (a), have

been included in the fulfilment cash flows of another group.

For example, to the extent that payments to policyholders in one group are

reduced from a share in the returns on underlying items of CU350 to CU250

because of payments of a guaranteed amount to policyholders in another

group, the fulfilment cash flows of the first group would include the

payments of CU100 (ie would be CU350) and the fulfilment cash flows of the

second group would exclude CU100 of the guaranteed amount.

Different practical approaches can be used to determine the fulfilment cash

flows of groups of contracts that affect or are affected by cash flows to

policyholders of contracts in other groups. In some cases, an entity might be

able to identify the change in the underlying items and resulting change in

the cash flows only at a higher level of aggregation than the groups. In such

cases, the entity shall allocate the effect of the change in the underlying items

to each group on a systematic and rational basis.

After all insurance contract services have been provided to the contracts in a

group, the fulfilment cash flows may still include payments expected to be

made to current policyholders in other groups or future policyholders. An

entity is not required to continue to allocate such fulfilment cash flows to

specific groups but can instead recognise and measure a liability for such

fulfilment cash flows arising from all groups.

Discount rates (paragraph 36)

An entity shall use the following discount rates in applying IFRS 17:

(a) to measure the fulfilment cash flows—current discount rates applying

paragraph 36;

(b) to determine the interest to accrete on the contractual service margin

applying paragraph 44(b) for insurance contracts without direct

participation features—discount rates determined at the date of initial

recognition of a group of contracts, applying paragraph 36 to nominal

cash flows that do not vary based on the returns on any underlying

items;

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paragraphs B96(a)‒B96(b) and B96(d) for insurance contracts without

direct participation features—discount rates applying paragraph 36

determined on initial recognition;

(d) for groups of contracts applying the premium allocation approach that

have a significant financing component, to adjust the carrying amount

of the liability for remaining coverage applying paragraph 56—

discount rates applying paragraph 36 determined on initial

recognition;

(e) if an entity chooses to disaggregate insurance finance income or

expenses between profit or loss and other comprehensive income (see

paragraph 88), to determine the amount of the insurance finance

income or expenses included in profit or loss:

(i)

for groups of insurance contracts for which changes in

assumptions that relate to financial risk do not have a

substantial effect on the amounts paid to policyholders,

applying paragraph B131—discount rates determined at the

date of initial recognition of a group of contracts, applying

paragraph 36 to nominal cash flows that do not vary based on

the returns on any underlying items;

(ii) for groups of insurance contracts for which changes in

assumptions that relate to financial risk have a substantial

effect on the amounts paid to policyholders, applying

paragraph B132(a)(i)—discount rates that allocate the

remaining revised expected finance income or expenses over

the remaining duration of the group of contracts at a constant

rate; and

(iii) for groups of contracts applying the premium allocation

approach applying paragraphs 59(b) and B133—discount rates

determined at the date of the incurred claim, applying

paragraph 36 to nominal cash flows that do not vary based on

the returns on any underlying items.

To determine the discount rates at the date of initial recognition of a group of

contracts described in paragraphs B72(b)–B72(e), an entity may use weighted-

average discount rates over the period that contracts in the group are issued,

which applying paragraph 22 cannot exceed one year.

Estimates of discount rates shall be consistent with other estimates used to

measure insurance contracts to avoid double counting or omissions; for

example:

(a)

cash flows that do not vary based on the returns on any underlying

items shall be discounted at rates that do not reflect any such

variability;

(b)

cash flows that vary based on the returns on any financial underlying

items shall be:

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(i) discounted using rates that reflect that variability; or

(ii) adjusted for the effect of that variability and discounted at a

rate that reflects the adjustment made.

be discounted at rates that include the effect of inflation; and

(d) real cash flows (ie those that exclude the effect of inflation) shall be

discounted at rates that exclude the effect of inflation.

Paragraph B74(b) requires cash flows that vary based on the returns on

underlying items to be discounted using rates that reflect that variability, or

to be adjusted for the effect of that variability and discounted at a rate that

reflects the adjustment made. The variability is a relevant factor regardless of

whether it arises because of contractual terms or because the entity exercises

discretion, and regardless of whether the entity holds the underlying items.

Cash flows that vary with returns on underlying items with variable returns,

but that are subject to a guarantee of a minimum return, do not vary solely

based on the returns on the underlying items, even when the guaranteed

amount is lower than the expected return on the underlying items. Hence, an

entity shall adjust the rate that reflects the variability of the returns on the

underlying items for the effect of the guarantee, even when the guaranteed

amount is lower than the expected return on the underlying items.

IFRS 17 does not require an entity to divide estimated cash flows into those

that vary based on the returns on underlying items and those that do not. If

an entity does not divide the estimated cash flows in this way, the entity shall

apply discount rates appropriate for the estimated cash flows as a whole; for

example, using stochastic modelling techniques or risk-neutral measurement

techniques.

Discount rates shall include only relevant factors, ie factors that arise from

the time value of money, the characteristics of the cash flows and the liquidity

characteristics of the insurance contracts. Such discount rates may not be

directly observable in the market. Hence, when observable market rates for an

instrument with the same characteristics are not available, or observable

market rates for similar instruments are available but do not separately

identify the factors that distinguish the instrument from the insurance

contracts, an entity shall estimate the appropriate rates. IFRS 17 does not

require a particular estimation technique for determining discount rates. In

applying an estimation technique, an entity shall:

(a) maximise the use of observable inputs (see paragraph B44) and reflect

all reasonable and supportable information on non-market variables

available without undue cost or effort, both external and internal (see

paragraph B49). In particular, the discount rates used shall not

contradict any available and relevant market data, and any non-market

variables used shall not contradict observable market variables.

(b)

reflect current market conditions from the perspective of a market

participant.

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features of the insurance contracts being measured and the features of

the instrument for which observable market prices are available and

adjust those prices to reflect the differences between them.

For cash flows of insurance contracts that do not vary based on the returns on

underlying items, the discount rate reflects the yield curve in the appropriate

currency for instruments that expose the holder to no or negligible credit risk,

adjusted to reflect the liquidity characteristics of the group of insurance

contracts. That adjustment shall reflect the difference between the liquidity

characteristics of the group of insurance contracts and the liquidity

characteristics of the assets used to determine the yield curve. Yield curves

reflect assets traded in active markets that the holder can typically sell readily

at any time without incurring significant costs. In contrast, under some

insurance contracts the entity cannot be forced to make payments earlier than

the occurrence of insured events, or dates specified in the contracts.

Hence, for cash flows of insurance contracts that do not vary based on the

returns on underlying items, an entity may determine discount rates by

adjusting a liquid risk-free yield curve to reflect the differences between the

liquidity characteristics of the financial instruments that underlie the rates

observed in the market and the liquidity characteristics of the insurance

contracts (a bottom-up approach).

Alternatively, an entity may determine the appropriate discount rates for

insurance contracts based on a yield curve that reflects the current market

rates of return implicit in a fair value measurement of a reference portfolio of

assets (a top-down approach). An entity shall adjust that yield curve to

eliminate any factors that are not relevant to the insurance contracts, but is

not required to adjust the yield curve for differences in liquidity

characteristics of the insurance contracts and the reference portfolio.

In estimating the yield curve described in paragraph B81:

(a) if there are observable market prices in active markets for assets in the

reference portfolio, an entity shall use those prices (consistent with

paragraph 69 of IFRS 13).

(b) if a market is not active, an entity shall adjust observable market

prices for similar assets to make them comparable to market prices for

the assets being measured (consistent with paragraph 83 of IFRS 13).

shall apply an estimation technique. For such assets (consistent with

paragraph 89 of IFRS 13) an entity shall:

(i) develop unobservable inputs using the best information

available in the circumstances. Such inputs might include the

entity’s own data and, in the context of IFRS 17, the entity

might place more weight on long-term estimates than on short-

term fluctuations; and

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(ii) adjust those data to reflect all information about market

participant assumptions that is reasonably available.

In adjusting the yield curve, an entity shall adjust market rates observed in

recent transactions in instruments with similar characteristics for movements

in market factors since the transaction date, and shall adjust observed market

rates to reflect the degree of dissimilarity between the instrument being

measured and the instrument for which transaction prices are observable. For

cash flows of insurance contracts that do not vary based on the returns on the

assets in the reference portfolio, such adjustments include:

(a) adjusting for differences between the amount, timing and uncertainty

of the cash flows of the assets in the portfolio and the amount, timing

and uncertainty of the cash flows of the insurance contracts; and

(b)

excluding market risk premiums for credit risk, which are relevant

only to the assets included in the reference portfolio.

In principle, for cash flows of insurance contracts that do not vary based on

the returns of the assets in the reference portfolio, there should be a single

illiquid risk-free yield curve that eliminates all uncertainty about the amount

and timing of cash flows. However, in practice the top-down approach and the

bottom-up approach may result in different yield curves, even in the same

currency. This is because of the inherent limitations in estimating the

adjustments made under each approach, and the possible lack of an

adjustment for different liquidity characteristics in the top-down approach.

An entity is not required to reconcile the discount rate determined under its

chosen approach with the discount rate that would have been determined

under the other approach.

IFRS 17 does not specify restrictions on the reference portfolio of assets used

in applying paragraph B81. However, fewer adjustments would be required to

eliminate factors that are not relevant to the insurance contracts when the

reference portfolio of assets has similar characteristics. For example, if the

cash flows from the insurance contracts do not vary based on the returns on

underlying items, fewer adjustments would be required if an entity used debt

instruments as a starting point rather than equity instruments. For debt

instruments, the objective would be to eliminate from the total bond yield the

effect of credit risk and other factors that are not relevant to the insurance

contracts. One way to estimate the effect of credit risk is to use the market

price of a credit derivative as a reference point.

Risk adjustment for non-nancial risk (paragraph 37)

The risk adjustment for non-financial risk relates to risk arising from

insurance contracts other than financial risk. Financial risk is included in the

estimates of the future cash flows or the discount rate used to adjust the cash

flows. The risks covered by the risk adjustment for non-financial risk are

insurance risk and other non-financial risks such as lapse risk and expense

risk (see paragraph B14).

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The risk adjustment for non-financial risk for insurance contracts measures

the compensation that the entity would require to make the entity indifferent

between:

(a) fulfilling a liability that has a range of possible outcomes arising from

non-financial risk; and

(b) fulfilling a liability that will generate fixed cash flows with the same

expected present value as the insurance contracts.

For example, the risk adjustment for non-financial risk would measure the

compensation the entity would require to make it indifferent between

fulfilling a liability that—because of non-financial risk—has a 50 per cent

probability of being CU90 and a 50 per cent probability of being CU110, and

fulfilling a liability that is fixed at CU100. As a result, the risk adjustment for

non-financial risk conveys information to users of financial statements about

the amount charged by the entity for the uncertainty arising from non-

financial risk about the amount and timing of cash flows.

Because the risk adjustment for non-financial risk reflects the compensation

the entity would require for bearing the non-financial risk arising from the

uncertain amount and timing of the cash flows, the risk adjustment for non-

financial risk also reflects:

(a) the degree of diversification benefit the entity includes when

determining the compensation it requires for bearing that risk; and

(b) both favourable and unfavourable outcomes, in a way that reflects the

entity’s degree of risk aversion.

The purpose of the risk adjustment for non-financial risk is to measure the

effect of uncertainty in the cash flows that arise from insurance contracts,

other than uncertainty arising from financial risk. Consequently, the risk

adjustment for non-financial risk shall reflect all non-financial risks associated

with the insurance contracts. It shall not reflect the risks that do not arise

from the insurance contracts, such as general operational risk.

The risk adjustment for non-financial risk shall be included in the

measurement in an explicit way. The risk adjustment for non-financial risk is

conceptually separate from the estimates of future cash flows and the

discount rates that adjust those cash flows. The entity shall not double-count

the risk adjustment for non-financial risk by, for example, also including the

risk adjustment for non-financial risk implicitly when determining the

estimates of future cash flows or the discount rates. The discount rates that

are disclosed to comply with paragraph 120 shall not include any implicit

adjustments for non-financial risk.

IFRS 17 does not specify the estimation technique(s) used to determine the

risk adjustment for non-financial risk. However, to reflect the compensation

the entity would require for bearing the non-financial risk, the risk

adjustment for non-financial risk shall have the following characteristics:

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(a) risks with low frequency and high severity will result in higher risk

adjustments for non-financial risk than risks with high frequency and

low severity;

(b) for similar risks, contracts with a longer duration will result in higher

risk adjustments for non-financial risk than contracts with a shorter

duration;

adjustments for non-financial risk than risks with a narrower

distribution;

(d) the less that is known about the current estimate and its trend, the

higher will be the risk adjustment for non-financial risk; and

(e)

to the extent that emerging experience reduces uncertainty about the

amount and timing of cash flows, risk adjustments for non-financial

risk will decrease and vice versa.

An entity shall apply judgement when determining an appropriate estimation

technique for the risk adjustment for non-financial risk. When applying that

judgement, an entity shall also consider whether the technique provides

concise and informative disclosure so that users of financial statements can

benchmark the entity’s performance against the performance of other

entities. Paragraph 119 requires an entity that uses a technique other than the

confidence level technique for determining the risk adjustment for non-

financial risk to disclose the technique used and the confidence level

corresponding to the results of that technique.

Initial recognition of transfers of insurance contracts and

business combinations (paragraph 39)

When an entity acquires insurance contracts issued or reinsurance contracts

held in a transfer of insurance contracts that do not form a business or in a

business combination within the scope of IFRS 3, the entity shall apply

paragraphs 14–24 to identify the groups of contracts acquired, as if it had

entered into the contracts on the date of the transaction.

An entity shall use the consideration received or paid for the contracts as a

proxy for the premiums received. The consideration received or paid for the

contracts excludes the consideration received or paid for any other assets and

liabilities acquired in the same transaction. In a business combination within

the scope of IFRS 3, the consideration received or paid is the fair value of the

contracts at that date. In determining that fair value, an entity shall not apply

paragraph 47 of IFRS 13 (relating to demand features).

Unless the premium allocation approach for the liability for remaining

coverage in paragraphs 55–59 and 69–70A applies, on initial recognition the

contractual service margin is calculated applying paragraph 38 for acquired

insurance contracts issued and paragraph 65 for acquired reinsurance

contracts held using the consideration received or paid for the contracts as a

proxy for the premiums received or paid at the date of initial recognition.

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If acquired insurance contracts issued are onerous, applying paragraph 47, the

entity shall recognise the excess of the fulfilment cash flows over the

consideration paid or received as part of goodwill or gain on a bargain

purchase for contracts acquired in a business combination within the scope of

IFRS 3, or as a loss in profit or loss for contracts acquired in a transfer. The

entity shall establish a loss component of the liability for remaining coverage

for that excess, and apply paragraphs 49–52 to allocate subsequent changes in

fulfilment cash flows to that loss component.

For a group of reinsurance contracts held to which paragraphs 66A–66B apply,

an entity shall determine the loss-recovery component of the asset for

remaining coverage at the date of the transaction by multiplying:

(a)

the loss component of the liability for remaining coverage of the

underlying insurance contracts at the date of the transaction; and

(b)

the percentage of claims on the underlying insurance contracts the

entity expects at the date of the transaction to recover from the group

of reinsurance contracts held.

The entity shall recognise the amount of the loss-recovery component

determined applying paragraph B95B as part of goodwill or gain on a bargain

purchase for reinsurance contracts held acquired in a business combination

within the scope of IFRS 3, or as income in profit or loss for contracts acquired

in a transfer.

Applying paragraphs 14‒22, at the date of the transaction an entity might

include in an onerous group of insurance contracts both onerous insurance

contracts covered by a group of reinsurance contracts held and onerous

contracts not covered by the group of reinsurance contracts held. To apply

paragraph B95B in such cases, an entity shall use a systematic and rational

basis of allocation to determine the portion of the loss component of the

group of insurance contracts that relates to insurance contracts covered by the

group of reinsurance contracts held.

Asset for insurance acquisition cash ows

When an entity acquires insurance contracts issued in a transfer of insurance

contracts that do not form a business or in a business combination within the

scope of IFRS 3, the entity shall recognise an asset for insurance acquisition

cash flows at fair value at the date of the transaction for the rights to obtain:

(a) future insurance contracts that are renewals of insurance contracts

recognised at the date of the transaction; and

(b) future insurance contracts, other than those in (a), after the date of the

transaction without paying again insurance acquisition cash flows the

acquiree has already paid that are directly attributable to the related

portfolio of insurance contracts.

At the date of the transaction, the amount of any asset for insurance

acquisition cash flows shall not be included in the measurement of the

acquired group of insurance contracts applying paragraphs B93‒B95A.

B95A

B95B

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IFRS 17

Changes in the carrying amount of the contractual

service margin for insurance contracts without direct

participation features (paragraph 44)

For insurance contracts without direct participation features, paragraph 44(c)

requires an adjustment to the contractual service margin of a group of

insurance contracts for changes in fulfilment cash flows that relate to future

service. These changes comprise:

(a) experience adjustments arising from premiums received in the period

that relate to future service, and related cash flows such as insurance

acquisition cash flows and premium-based taxes, measured at the

discount rates specified in paragraph B72(c).

(b)

changes in estimates of the present value of the future cash flows in

the liability for remaining coverage, except those described in

paragraph B97(a), measured at the discount rates specified in

paragraph B72(c).

(c)

differences between any investment component expected to become

payable in the period and the actual investment component that

becomes payable in the period. Those differences are determined by

comparing (i) the actual investment component that becomes payable

in the period with (ii) the payment in the period that was expected at

the start of the period plus any insurance finance income or expenses

related to that expected payment before it becomes payable.

(ca) differences between any loan to a policyholder expected to become

repayable in the period and the actual loan to a policyholder that

becomes repayable in the period. Those differences are determined by

comparing (i) the actual loan to a policyholder that becomes repayable

in the period with (ii) the repayment in the period that was expected at

the start of the period plus any insurance finance income or expenses

related to that expected repayment before it becomes repayable.

(d) changes in the risk adjustment for non-financial risk that relate to

future service. An entity is not required to disaggregate the change in

the risk adjustment for non-financial risk between (i) a change related

to non-financial risk and (ii) the effect of the time value of money and

changes in the time value of money. If an entity makes such a

disaggregation, it shall adjust the contractual service margin for the

change related to non-financial risk, measured at the discount rates

specified in paragraph B72(c).

An entity shall not adjust the contractual service margin for a group of

insurance contracts without direct participation features for the following

changes in fulfilment cash flows because they do not relate to future service:

(a)

the effect of the time value of money and changes in the time value of

money and the effect of financial risk and changes in financial risk.

These effects comprise:

(i)

the effect, if any, on estimated future cash flows;

B96

B97

IFRS 17

(ii) the effect, if disaggregated, on the risk adjustment for non-

financial risk; and

(iii) the effect of a change in discount rate.

(b) changes in estimates of fulfilment cash flows in the liability for

incurred claims.

The terms of some insurance contracts without direct participation features

give an entity discretion over the cash flows to be paid to policyholders. A

change in the discretionary cash flows is regarded as relating to future service,

and accordingly adjusts the contractual service margin. To determine how to

identify a change in discretionary cash flows, an entity shall specify at

inception of the contract the basis on which it expects to determine its

commitment under the contract; for example, based on a fixed interest rate,

or on returns that vary based on specified asset returns.

An entity shall use that specification to distinguish between the effect of

changes in assumptions that relate to financial risk on that commitment

(which do not adjust the contractual service margin) and the effect of

discretionary changes to that commitment (which adjust the contractual

service margin).

If an entity cannot specify at inception of the contract what it regards as its

commitment under the contract and what it regards as discretionary, it shall

regard its commitment to be the return implicit in the estimate of the

fulfilment cash flows at inception of the contract, updated to reflect current

assumptions that relate to financial risk.

Changes in the carrying amount of the contractual

service margin for insurance contracts with direct

participation features (paragraph 45)

Insurance contracts with direct participation features are insurance contracts

that are substantially investment-related service contracts under which an

entity promises an investment return based on underlying items. Hence, they

are defined as insurance contracts for which:

(a) the contractual terms specify that the policyholder participates in a

share of a clearly identified pool of underlying items (see paragraphs

B105–B106);

(b) the entity expects to pay to the policyholder an amount equal to a

substantial share of the fair value returns on the underlying items (see

paragraph B107); and

(c)

the entity expects a substantial proportion of any change in the

amounts to be paid to the policyholder to vary with the change in fair

value of the underlying items (see paragraph B107).

B98

B99

B100

B101

IFRS 17

An entity shall assess whether the conditions in paragraph B101 are met using

its expectations at inception of the contract and shall not reassess the

conditions afterwards, unless the contract is modified, applying paragraph 72.

To the extent that insurance contracts in a group affect the cash flows to

policyholders of contracts in other groups (see paragraphs B67–B71), an entity

shall assess whether the conditions in paragraph B101 are met by considering

the cash flows that the entity expects to pay the policyholders determined

applying paragraphs B68–B70.

The conditions in paragraph B101 ensure that insurance contracts with direct

participation features are contracts under which the entity’s obligation to the

policyholder is the net of:

(a)

the obligation to pay the policyholder an amount equal to the fair

value of the underlying items; and

(b)

a variable fee (see paragraphs B110–B118) that the entity will deduct

from (a) in exchange for the future service provided by the insurance

contract, comprising:

(i)

the amount of the entity’s share of the fair value of the

underlying items; less

(ii) fulfilment cash flows that do not vary based on the returns on

underlying items.

A share referred to in paragraph B101(a) does not preclude the existence of the

entity’s discretion to vary the amounts paid to the policyholder. However, the

link to the underlying items must be enforceable (see paragraph 2).

The pool of underlying items referred to in paragraph B101(a) can comprise

any items, for example a reference portfolio of assets, the net assets of the

entity, or a specified subset of the net assets of the entity, as long as they are

clearly identified by the contract. An entity need not hold the identified pool

of underlying items. However, a clearly identified pool of underlying items

does not exist when:

(a) an entity can change the underlying items that determine the amount

of the entity’s obligation with retrospective effect; or

(b) there are no underlying items identified, even if the policyholder could

be provided with a return that generally reflects the entity’s overall

performance and expectations, or the performance and expectations of

a subset of assets the entity holds. An example of such a return is a

crediting rate or dividend payment set at the end of the period to

which it relates. In this case, the obligation to the policyholder reflects

the crediting rate or dividend amounts the entity has set, and does not

reflect identified underlying items.

B102

B103

B104

B105

B106

IFRS 17

Paragraph B101(b) requires that the entity expects a substantial share of the

fair value returns on the underlying items will be paid to the policyholder and

paragraph B101(c) requires that the entity expects a substantial proportion of

any change in the amounts to be paid to the policyholder to vary with the

change in fair value of the underlying items. An entity shall:

(a) interpret the term ‘substantial’ in both paragraphs in the context of

the objective of insurance contracts with direct participation features

being contracts under which the entity provides investment-related

services and is compensated for the services by a fee that is determined

by reference to the underlying items; and

(b)

assess the variability in the amounts in paragraphs B101(b) and

B101(c):

(i)

over the duration of the insurance contract; and

(ii)

on a present value probability-weighted average basis, not a

best or worst outcome basis (see paragraphs B37–B38).

For example, if the entity expects to pay a substantial share of the fair value

returns on underlying items, subject to a guarantee of a minimum return,

there will be scenarios in which:

(a) the cash flows that the entity expects to pay to the policyholder vary

with the changes in the fair value of the underlying items because the

guaranteed return and other cash flows that do not vary based on the

returns on underlying items do not exceed the fair value return on the

underlying items; and

(b) the cash flows that the entity expects to pay to the policyholder do not

vary with the changes in the fair value of the underlying items because

the guaranteed return and other cash flows that do not vary based on

the returns on underlying items exceed the fair value return on the

underlying items.

The entity’s assessment of the variability in paragraph B101(c) for this

example will reflect a present value probability-weighted average of all these

scenarios.

Reinsurance contracts issued and reinsurance contracts held cannot be

insurance contracts with direct participation features for the purposes of

IFRS 17.

For insurance contracts with direct participation features, the contractual

service margin is adjusted to reflect the variable nature of the fee. Hence,

changes in the amounts set out in paragraph B104 are treated as set out in

paragraphs B111–B114.

Changes in the obligation to pay the policyholder an amount equal to the fair

value of the underlying items (paragraph B104(a)) do not relate to future

service and do not adjust the contractual service margin.

B107

B108

B109

B110

B111

IFRS 17

Changes in the amount of the entity’s share of the fair value of the underlying

items (paragraph B104(b)(i)) relate to future service and adjust the contractual

service margin, applying paragraph 45(b).

Changes in the fulfilment cash flows that do not vary based on the returns on

underlying items (paragraph B104(b)(ii)) comprise:

(a) changes in the fulfilment cash flows other than those specified in (b).

An entity shall apply paragraphs B96–B97, consistent with insurance

contracts without direct participation features, to determine to what

extent they relate to future service and, applying paragraph 45(c),

adjust the contractual service margin. All the adjustments are

measured using current discount rates.

(b)

the change in the effect of the time value of money and financial risks

not arising from the underlying items; for example, the effect of

financial guarantees. These relate to future service and, applying

paragraph 45(c), adjust the contractual service margin, except to the

extent that paragraph B115 applies.

An entity is not required to identify the adjustments to the contractual service

margin required by paragraphs B112 and B113 separately. Instead, a combined

amount may be determined for some or all of the adjustments.

Risk mitigation

To the extent that an entity meets the conditions in paragraph B116, it may

choose not to recognise a change in the contractual service margin to reflect

some or all of the changes in the effect of the time value of money and

financial risk on:

(a) the amount of the entity’s share of the underlying items (see

paragraph B112) if the entity mitigates the effect of financial risk on

that amount using derivatives or reinsurance contracts held; and

(b) the fulfilment cash flows set out in paragraph B113(b) if the entity

mitigates the effect of financial risk on those fulfilment cash flows

using derivatives, non-derivative financial instruments measured at

fair value through profit or loss, or reinsurance contracts held.

To apply paragraph B115, an entity must have a previously documented risk-

management objective and strategy for mitigating financial risk as described

in paragraph B115. In applying that objective and strategy:

(a) an economic offset exists between the insurance contracts and the

derivative, non-derivative financial instrument measured at fair value

through profit or loss, or reinsurance contract held (ie the values of the

insurance contracts and those risk mitigating items generally move in

opposite directions because they respond in a similar way to the

changes in the risk being mitigated). An entity shall not consider

accounting measurement differences in assessing the economic offset.

(b)

credit risk does not dominate the economic offset.

B112

B113

B114

B115

B116

IFRS 17

The entity shall determine the fulfilment cash flows in a group to which

paragraph B115 applies in a consistent manner in each reporting period.

If the entity mitigates the effect of financial risk using derivatives or non-

derivative financial instruments measured at fair value through profit or loss,

it shall include insurance finance income or expenses for the period arising

from the application of paragraph B115 in profit or loss. If the entity mitigates

the effect of financial risk using reinsurance contracts held, it shall apply the

same accounting policy for the presentation of insurance finance income or

expenses arising from the application of paragraph B115 as the entity applies

to the reinsurance contracts held applying paragraphs 88 and 90.

If, and only if, any of the conditions in paragraph B116 cease to be met an

entity shall cease to apply paragraph B115 from that date. An entity shall not

make any adjustment for changes previously recognised in profit or loss.

Recognition of the contractual service margin in prot or

loss

An amount of the contractual service margin for a group of insurance

contracts is recognised in profit or loss in each period to reflect the insurance

contract services provided under the group of insurance contracts in that

period (see paragraphs 44(e), 45(e) and 66(e)). The amount is determined by:

(a) identifying the coverage units in the group. The number of coverage

units in a group is the quantity of insurance contract services provided

by the contracts in the group, determined by considering for each

contract the quantity of the benefits provided under a contract and its

expected coverage period.

(b) allocating the contractual service margin at the end of the period

(before recognising any amounts in profit or loss to reflect the

insurance contract services provided in the period) equally to each

coverage unit provided in the current period and expected to be

provided in the future.

provided in the period.

To apply paragraph B119, the period of investment-return service or

investment-related service ends at or before the date that all amounts due to

current policyholders relating to those services have been paid, without

considering payments to future policyholders included in the fulfilment cash

flows applying paragraph B68.

Insurance contracts without direct participation features may provide an

investment-return service if, and only if:

(a)

an investment component exists, or the policyholder has a right to

withdraw an amount;

B117

B117A

B118

B119

B119A

B119B

IFRS 17

(b) the entity expects the investment component or amount the

policyholder has a right to withdraw to include an investment return

(an investment return could be below zero, for example, in a negative

interest rate environment); and

investment return.

Reinsurance contracts held—recognition of recovery of

losses on underlying insurance contracts (paragraphs

66A−66B)

Paragraph 66A applies if, and only if, the reinsurance contract held is entered

into before or at the same time as the onerous underlying insurance contracts

are recognised.

To apply paragraph 66A, an entity shall determine the adjustment to the

contractual service margin of a group of reinsurance contracts held and the

resulting income by multiplying:

(a)

the loss recognised on the underlying insurance contracts; and

(b)

the percentage of claims on the underlying insurance contracts the

entity expects to recover from the group of reinsurance contracts held.

Applying paragraphs 14‒22, an entity might include in an onerous group of

insurance contracts both onerous insurance contracts covered by a group of

reinsurance contracts held and onerous insurance contracts not covered by

the group of reinsurance contracts held. To apply paragraphs 66(c)(i)‒(ii) and

paragraph 66A in such cases, the entity shall apply a systematic and rational

method of allocation to determine the portion of losses recognised on the

group of insurance contracts that relates to insurance contracts covered by the

group of reinsurance contracts held.

After an entity has established a loss-recovery component applying

paragraph 66B, the entity shall adjust the loss-recovery component to reflect

changes in the loss component of an onerous group of underlying insurance

contracts (see paragraphs 50–52). The carrying amount of the loss-recovery

component shall not exceed the portion of the carrying amount of the loss

component of the onerous group of underlying insurance contracts that the

entity expects to recover from the group of reinsurance contracts held.

Insurance revenue (paragraphs 83 and 85)

The total insurance revenue for a group of insurance contracts is the

consideration for the contracts, ie the amount of premiums paid to the entity:

(a) adjusted for a financing effect; and

(b)

excluding any investment components.

B119C

B119D

B119E

B119F

B120

IFRS 17

Paragraph 83 requires the amount of insurance revenue recognised in a period

to depict the transfer of promised services at an amount that reflects the

consideration to which the entity expects to be entitled in exchange for those

services. The total consideration for a group of contracts covers the following

amounts:

(a) amounts related to the provision of services, comprising:

(i) insurance service expenses, excluding any amounts relating to

the risk adjustment for non-financial risk included in (ii) and

any amounts allocated to the loss component of the liability for

remaining coverage;

(ia)

amounts related to income tax that are specifically chargeable

to the policyholder;

(ii)

the risk adjustment for non-financial risk, excluding any

amounts allocated to the loss component of the liability for

remaining coverage; and

(iii)

the contractual service margin.

(b)

amounts related to insurance acquisition cash flows.

Insurance revenue for a period relating to the amounts described in

paragraph B121(a) is determined as set out in paragraphs B123–B124.

Insurance revenue for a period relating to the amounts described in

paragraph B121(b) is determined as set out in paragraph B125.

Applying IFRS 15, when an entity provides services, it derecognises the

performance obligation for those services and recognises revenue.

Consistently, applying IFRS 17, when an entity provides services in a period, it

reduces the liability for remaining coverage for the services provided and

recognises insurance revenue. The reduction in the liability for remaining

coverage that gives rise to insurance revenue excludes changes in the liability

that do not relate to services expected to be covered by the consideration

received by the entity. Those changes are:

(a) changes that do not relate to services provided in the period, for

example:

(i) changes resulting from cash inflows from premiums received;

(ii) changes that relate to investment components in the period;

(iia) changes resulting from cash flows from loans to policyholders;

(iii) changes that relate to transaction-based taxes collected on

behalf of third parties (such as premium taxes, value added

taxes and goods and services taxes) (see paragraph B65(i));

(iv)

insurance finance income or expenses;

(v)

insurance acquisition cash flows (see paragraph B125); and

(vi)

derecognition of liabilities transferred to a third party.

B121

B122

B123

IFRS 17

(b) changes that relate to services, but for which the entity does not

expect consideration, ie increases and decreases in the loss component

of the liability for remaining coverage (see paragraphs 47–52).

To the extent that an entity derecognises an asset for cash flows other than

insurance acquisition cash flows at the date of initial recognition of a group of

insurance contracts (see paragraphs 38(c)(ii) and B66A), it shall recognise

insurance revenue and expenses for the amount derecognised at that date.

Consequently, insurance revenue for the period can also be analysed as the

total of the changes in the liability for remaining coverage in the period that

relates to services for which the entity expects to receive consideration. Those

changes are:

(a)

insurance service expenses incurred in the period (measured at the

amounts expected at the beginning of the period), excluding:

(i)

amounts allocated to the loss component of the liability for

remaining coverage applying paragraph 51(a);

(ii)

repayments of investment components;

(iii)

amounts that relate to transaction-based taxes collected on

behalf of third parties (such as premium taxes, value added

taxes and goods and services taxes) (see paragraph B65(i));

(iv) insurance acquisition expenses (see paragraph B125); and

(v) the amount related to the risk adjustment for non-financial

risk (see (b)).

(b) the change in the risk adjustment for non-financial risk, excluding:

(i) changes included in insurance finance income or expenses

applying paragraph 87;

(ii) changes that adjust the contractual service margin because

they relate to future service applying paragraphs 44(c) and

45(c); and

(iii) amounts allocated to the loss component of the liability for

remaining coverage applying paragraph 51(b).

loss in the period, applying paragraphs 44(e) and 45(e).

(d) other amounts, if any, for example, experience adjustments for

premium receipts other than those that relate to future service (see

paragraph B96(a)).

An entity shall determine insurance revenue related to insurance acquisition

cash flows by allocating the portion of the premiums that relate to recovering

those cash flows to each reporting period in a systematic way on the basis of

the passage of time. An entity shall recognise the same amount as insurance

service expenses.

B123A

B124

B125

IFRS 17

When an entity applies the premium allocation approach in paragraphs

55–58, insurance revenue for the period is the amount of expected premium

receipts (excluding any investment component and adjusted to reflect the

time value of money and the effect of financial risk, if applicable, applying

paragraph 56) allocated to the period. The entity shall allocate the expected

premium receipts to each period of insurance contract services:

(a) on the basis of the passage of time; but

(b) if the expected pattern of release of risk during the coverage period

differs significantly from the passage of time, then on the basis of the

expected timing of incurred insurance service expenses.

An entity shall change the basis of allocation between paragraphs B126(a) and

B126(b) as necessary if facts and circumstances change.

Insurance nance income or expenses (paragraphs 87–92)

Paragraph 87 requires an entity to include in insurance finance income or

expenses the effect of the time value of money and financial risk and changes

therein. For the purposes of IFRS 17:

(a)

assumptions about inflation based on an index of prices or rates or on

prices of assets with inflation-linked returns are assumptions that

relate to financial risk;

(b) assumptions about inflation based on an entity’s expectation of

specific price changes are not assumptions that relate to financial risk;

and

by changes in the value of underlying items (excluding additions and

withdrawals) are changes arising from the effect of the time value of

money and financial risk and changes therein.

Paragraphs 88–89 require an entity to make an accounting policy choice as to

whether to disaggregate insurance finance income or expenses for the period

between profit or loss and other comprehensive income. An entity shall apply

its choice of accounting policy to portfolios of insurance contracts. In

assessing the appropriate accounting policy for a portfolio of insurance

contracts, applying paragraph 13 of IAS 8 Accounting Policies, Changes in

Accounting Estimates and Errors, the entity shall consider for each portfolio the

assets that the entity holds and how it accounts for those assets.

If paragraph 88(b) applies, an entity shall include in profit or loss an amount

determined by a systematic allocation of the expected total finance income or

expenses over the duration of the group of insurance contracts. In this

context, a systematic allocation is an allocation of the total expected finance

income or expenses of a group of insurance contracts over the duration of the

group that:

B126

B127

B128

B129

B130

IFRS 17

(a) is based on characteristics of the contracts, without reference to

factors that do not affect the cash flows expected to arise under the

contracts. For example, the allocation of the finance income or

expenses shall not be based on expected recognised returns on assets if

those expected recognised returns do not affect the cash flows of the

contracts in the group.

(b) results in the amounts recognised in other comprehensive income over

the duration of the group of contracts totalling zero. The cumulative

amount recognised in other comprehensive income at any date is the

difference between the carrying amount of the group of contracts and

the amount that the group would be measured at when applying the

systematic allocation.

For groups of insurance contracts for which changes in assumptions that

relate to financial risk do not have a substantial effect on the amounts paid to

the policyholder, the systematic allocation is determined using the discount

rates specified in paragraph B72(e)(i).

For groups of insurance contracts for which changes in assumptions that

relate to financial risk have a substantial effect on the amounts paid to the

policyholders:

(a)

a systematic allocation for the finance income or expenses arising from

the estimates of future cash flows can be determined in one of the

following ways:

(i) using a rate that allocates the remaining revised expected

finance income or expenses over the remaining duration of the

group of contracts at a constant rate; or

(ii) for contracts that use a crediting rate to determine amounts

due to the policyholders—using an allocation that is based on

the amounts credited in the period and expected to be credited

in future periods.

(b) a systematic allocation for the finance income or expenses arising from

the risk adjustment for non-financial risk, if separately disaggregated

from other changes in the risk adjustment for non-financial risk

applying paragraph 81, is determined using an allocation consistent

with that used for the allocation for the finance income or expenses

arising from the future cash flows.

the contractual service margin is determined:

(i) for insurance contracts that do not have direct participation

features, using the discount rates specified in paragraph B72(b);

and

(ii)

for insurance contracts with direct participation features, using

an allocation consistent with that used for the allocation for

the finance income or expenses arising from the future cash

flows.

B131

B132

IFRS 17

In applying the premium allocation approach to insurance contracts described

in paragraphs 53–59, an entity may be required, or may choose, to discount

the liability for incurred claims. In such cases, it may choose to disaggregate

the insurance finance income or expenses applying paragraph 88(b). If the

entity makes this choice, it shall determine the insurance finance income or

expenses in profit or loss using the discount rate specified in paragraph B72(e)

(iii).

Paragraph 89 applies if an entity, either by choice or because it is required to,

holds the underlying items for insurance contracts with direct participation

features. If an entity chooses to disaggregate insurance finance income or

expenses applying paragraph 89(b), it shall include in profit or loss expenses or

income that exactly match the income or expenses included in profit or loss

for the underlying items, resulting in the net of the separately presented

items being nil.

An entity may qualify for the accounting policy choice in paragraph 89 in

some periods but not in others because of a change in whether it holds

the underlying items. If such a change occurs, the accounting policy choice

available to the entity changes from that set out in paragraph 88 to that set

out in paragraph 89, or vice versa. Hence, an entity might change its

accounting policy between that set out in paragraph 88(b) and that set out

in paragraph 89(b). In making such a change an entity shall:

(a) include the accumulated amount previously included in other

comprehensive income by the date of the change as a reclassification

adjustment in profit or loss in the period of change and in future

periods, as follows:

(i) if the entity had previously applied paragraph 88(b)—the entity

shall include in profit or loss the accumulated amount included

in other comprehensive income before the change as if the

entity were continuing the approach in paragraph 88(b) based

on the assumptions that applied immediately before the

change; and

(ii) if the entity had previously applied paragraph 89(b)—the entity

shall include in profit or loss the accumulated amount included

in other comprehensive income before the change as if the

entity were continuing the approach in paragraph 89(b) based

on the assumptions that applied immediately before the

change.

(b) not restate prior period comparative information.

When applying paragraph B135(a), an entity shall not recalculate the

accumulated amount previously included in other comprehensive income as if

the new disaggregation had always applied; and the assumptions used for the

reclassification in future periods shall not be updated after the date of the

change.

B133

B134

B135

B136

IFRS 17

The effect of accounting estimates made in interim nancial

statements

If an entity prepares interim financial statements applying IAS 34 Interim

Financial Reporting, the entity shall make an accounting policy choice as to

whether to change the treatment of accounting estimates made in previous

interim financial statements when applying IFRS 17 in subsequent interim

financial statements and in the annual reporting period. The entity shall apply

its choice of accounting policy to all groups of insurance contracts it issues

and groups of reinsurance contracts it holds.

B137

IFRS 17

Appendix C

Effective date and transition

This appendix is an integral part of IFRS 17 Insurance Contracts.

Effective date

An entity shall apply IFRS 17 for annual reporting periods beginning on or

after 1 January 2023. If an entity applies IFRS 17 earlier, it shall disclose that

fact. Early application is permitted for entities that apply IFRS 9 Financial

Instruments on or before the date of initial application of IFRS 17.

For the purposes of the transition requirements in paragraphs C1 and C3–C33:

(a)

the date of initial application is the beginning of the annual reporting

period in which an entity first applies IFRS 17; and

(b)

the transition date is the beginning of the annual reporting period

immediately preceding the date of initial application.

Initial Application of IFRS 17 and IFRS 9—Comparative Information, issued in

December 2021, added paragraphs C28A–C28E and C33A. An entity that

chooses to apply paragraphs C28A–C28E and C33A shall apply them on initial

application of IFRS 17.

Transition

Unless it is impracticable to do so, or paragraph C5A applies, an entity shall

apply IFRS 17 retrospectively, except that:

(a) an entity is not required to present the quantitative information

required by paragraph 28(f) of IAS 8 Accounting Policies, Changes in

Accounting Estimates and Errors; and

(b) an entity shall not apply the option in paragraph B115 for periods

before the transition date. An entity may apply the option in

paragraph B115 prospectively on or after the transition date if, and

only if, the entity designates risk mitigation relationships at or before

the date it applies the option.

To apply IFRS 17 retrospectively, an entity shall at the transition date:

(a) identify, recognise and measure each group of insurance contracts as if

IFRS 17 had always applied;

(aa) identify, recognise and measure any assets for insurance acquisition

cash flows as if IFRS 17 had always applied (except that an entity is not

required to apply the recoverability assessment in paragraph 28E

before the transition date);

(b)

derecognise any existing balances that would not exist had IFRS 17

always applied; and

(c)

recognise any resulting net difference in equity.

C2A

IFRS 17

If, and only if, it is impracticable for an entity to apply paragraph C3 for a

group of insurance contracts, an entity shall apply the following approaches

instead of applying paragraph C4(a):

(a) the modified retrospective approach in paragraphs C6–C19A, subject to

paragraph C6(a); or

(b) the fair value approach in paragraphs C20–C24B.

Notwithstanding paragraph C5, an entity may choose to apply the fair value

approach in paragraphs C20–C24B for a group of insurance contracts with

direct participation features to which it could apply IFRS 17 retrospectively if,

and only if:

(a)

the entity chooses to apply the risk mitigation option in

paragraph B115 to the group of insurance contracts prospectively from

the transition date; and

(b)

the entity has used derivatives, non-derivative financial instruments

measured at fair value through profit or loss, or reinsurance contracts

held to mitigate financial risk arising from the group of insurance

contracts, as specified in paragraph B115, before the transition date.

If, and only if, it is impracticable for an entity to apply paragraph C4(aa) for an

asset for insurance acquisition cash flows, the entity shall apply the following

approaches to measure the asset for insurance acquisition cash flows:

(a) the modified retrospective approach in paragraphs C14B–C14D and

C17A, subject to paragraph C6(a); or

(b) the fair value approach in paragraphs C24A–C24B.

Modied retrospective approach

The objective of the modified retrospective approach is to achieve the closest

outcome to retrospective application possible using reasonable and

supportable information available without undue cost or effort. Accordingly,

in applying this approach, an entity shall:

(a) use reasonable and supportable information. If the entity cannot

obtain reasonable and supportable information necessary to apply the

modified retrospective approach, it shall apply the fair value approach.

(b) maximise the use of information that would have been used to apply a

fully retrospective approach, but need only use information available

without undue cost or effort.

Paragraphs C9–C19A set out permitted modifications to retrospective

application in the following areas:

(a)

assessments of insurance contracts or groups of insurance contracts

that would have been made at the date of inception or initial

recognition;

(b)

amounts related to the contractual service margin or loss component

for insurance contracts without direct participation features;

C5A

C5B

IFRS 17

for insurance contracts with direct participation features; and

(d) insurance finance income or expenses.

To achieve the objective of the modified retrospective approach, an entity is

permitted to use each modification in paragraphs C9–C19A only to the extent

that an entity does not have reasonable and supportable information to apply

a retrospective approach.

Assessments at inception or initial recognition

To the extent permitted by paragraph C8, an entity shall determine the

following matters using information available at the transition date:

(a)

how to identify groups of insurance contracts, applying paragraphs

14–24;

(b)

whether an insurance contract meets the definition of an insurance

contract with direct participation features, applying paragraphs

B101–B109;

(c)

how to identify discretionary cash flows for insurance contracts

without direct participation features, applying paragraphs B98–B100;

and

(d) whether an investment contract meets the definition of an investment

contract with discretionary participation features within the scope of

IFRS 17, applying paragraph 71.

To the extent permitted by paragraph C8, an entity shall classify as a liability

for incurred claims a liability for settlement of claims incurred before an

insurance contract was acquired in a transfer of insurance contracts that do

not form a business or in a business combination within the scope of IFRS 3.

To the extent permitted by paragraph C8, an entity shall not apply

paragraph 22 to divide groups into those that do not include contracts issued

more than one year apart.

Determining the contractual service margin or loss component for

groups of insurance contracts without direct participation features

To the extent permitted by paragraph C8, for contracts without direct

participation features, an entity shall determine the contractual service

margin or loss component of the liability for remaining coverage (see

paragraphs 49–52) at the transition date by applying paragraphs C12–C16C.

To the extent permitted by paragraph C8, an entity shall estimate the future

cash flows at the date of initial recognition of a group of insurance contracts

as the amount of the future cash flows at the transition date (or earlier date, if

the future cash flows at that earlier date can be determined retrospectively,

applying paragraph C4(a)), adjusted by the cash flows that are known to have

occurred between the date of initial recognition of a group of insurance

contracts and the transition date (or earlier date). The cash flows that are

C9A

C10

C11

C12

IFRS 17

known to have occurred include cash flows resulting from contracts that

ceased to exist before the transition date.

To the extent permitted by paragraph C8, an entity shall determine the

discount rates that applied at the date of initial recognition of a group of

insurance contracts (or subsequently):

(a) using an observable yield curve that, for at least three years

immediately before the transition date, approximates the yield curve

estimated applying paragraphs 36 and B72–B85, if such an observable

yield curve exists.

(b) if the observable yield curve in paragraph (a) does not exist, estimate

the discount rates that applied at the date of initial recognition (or

subsequently) by determining an average spread between an

observable yield curve and the yield curve estimated applying

paragraphs 36 and B72–B85, and applying that spread to that

observable yield curve. That spread shall be an average over at least

three years immediately before the transition date.

To the extent permitted by paragraph C8, an entity shall determine the risk

adjustment for non-financial risk at the date of initial recognition of a group

of insurance contracts (or subsequently) by adjusting the risk adjustment for

non-financial risk at the transition date by the expected release of risk before

the transition date. The expected release of risk shall be determined by

reference to the release of risk for similar insurance contracts that the entity

issues at the transition date.

Applying paragraph B137, an entity may choose not to change the treatment

of accounting estimates made in previous interim financial statements. To the

extent permitted by paragraph C8, such an entity shall determine the

contractual service margin or loss component at the transition date as if the

entity had not prepared interim financial statements before the transition

date.

To the extent permitted by paragraph C8, an entity shall use the same

systematic and rational method the entity expects to use after the transition

date when applying paragraph 28A to allocate any insurance acquisition cash

flows paid (or for which a liability has been recognised applying another IFRS

Standard) before the transition date (excluding any amount relating to

insurance contracts that ceased to exist before the transition date) to:

(a) groups of insurance contracts that are recognised at the transition

date; and

(b) groups of insurance contracts that are expected to be recognised after

the transition date.

Insurance acquisition cash flows paid before the transition date that are

allocated to a group of insurance contracts recognised at the transition date

adjust the contractual service margin of that group, to the extent insurance

contracts expected to be in the group have been recognised at that date

(see paragraphs 28C and B35C). Other insurance acquisition cash flows paid

C13

C14

C14A

C14B

C14C

IFRS 17

before the transition date, including those allocated to a group of insurance

contracts expected to be recognised after the transition date, are recognised as

an asset, applying paragraph 28B.

If an entity does not have reasonable and supportable information to

apply paragraph C14B, the entity shall determine the following amounts to be

nil at the transition date:

(a) the adjustment to the contractual service margin of a group of

insurance contracts recognised at the transition date and any asset for

insurance acquisition cash flows relating to that group; and

(b) the asset for insurance acquisition cash flows for groups of insurance

contracts expected to be recognised after the transition date.

If applying paragraphs C12–C14D results in a contractual service margin at

the date of initial recognition, to determine the contractual service margin at

the date of transition an entity shall:

(a)

if the entity applies C13 to estimate the discount rates that apply on

initial recognition, use those rates to accrete interest on the

contractual service margin; and

(b)

to the extent permitted by paragraph C8, determine the amount of the

contractual service margin recognised in profit or loss because of the

transfer of services before the transition date, by comparing the

remaining coverage units at that date with the coverage units provided

under the group of contracts before the transition date (see

paragraph B119).

If applying paragraphs C12–C14D results in a loss component of the liability

for remaining coverage at the date of initial recognition, an entity shall

determine any amounts allocated to the loss component before the transition

date applying paragraphs C12–C14D and using a systematic basis of allocation.

For a group of reinsurance contracts held that provides coverage for an

onerous group of insurance contracts and was entered into before or at the

same time that the insurance contracts were issued, an entity shall establish a

loss-recovery component of the asset for remaining coverage at the transition

date (see paragraphs 66A–66B). To the extent permitted by paragraph C8, an

entity shall determine the loss-recovery component by multiplying:

(a) the loss component of the liability for remaining coverage for the

underlying insurance contracts at the transition date (see paragraphs

C16 and C20); and

(b) the percentage of claims for the underlying insurance contracts the

entity expects to recover from the group of reinsurance contracts held.

Applying paragraphs 14‒22, at the transition date an entity might include in

an onerous group of insurance contracts both onerous insurance contracts

covered by a group of reinsurance contracts held and onerous insurance

contracts not covered by the group of reinsurance contracts held. To apply

paragraph C16A in such cases, an entity shall use a systematic and rational

C14D

C15

C16

C16A

C16B

IFRS 17

basis of allocation to determine the portion of the loss component of the

group of insurance contracts that relates to insurance contracts covered by the

group of reinsurance contracts held.

If an entity does not have reasonable and supportable information to apply

paragraph C16A, the entity shall not identify a loss-recovery component for

the group of reinsurance contracts held.

Determining the contractual service margin or loss component for

groups of insurance contracts with direct participation features

To the extent permitted by paragraph C8, for contracts with direct

participation features an entity shall determine the contractual service margin

or loss component of the liability for remaining coverage at the transition date

as:

(a)

the total fair value of the underlying items at that date; minus

(b)

the fulfilment cash flows at that date; plus or minus

(c)

an adjustment for:

(i)

amounts charged by the entity to the policyholders (including

amounts deducted from the underlying items) before that date.

(ii) amounts paid before that date that would not have varied based

on the underlying items.

(iii) the change in the risk adjustment for non-financial risk caused

by the release from risk before that date. The entity shall

estimate this amount by reference to the release of risk for

similar insurance contracts that the entity issues at the

transition date.

(iv) insurance acquisition cash flows paid (or for which a liability

has been recognised applying another IFRS Standard) before the

transition date that are allocated to the group (see

paragraph C17A).

(d) if (a)–(c) result in a contractual service margin—minus the amount of

the contractual service margin that relates to services provided before

that date. The total of (a)–(c) is a proxy for the total contractual service

margin for all services to be provided under the group of contracts,

ie before any amounts that would have been recognised in profit or

loss for services provided. The entity shall estimate the amounts that

would have been recognised in profit or loss for services provided by

comparing the remaining coverage units at the transition date with

the coverage units provided under the group of contracts before the

transition date; or

(e)

if (a)–(c) result in a loss component—adjust the loss component to nil

and increase the liability for remaining coverage excluding the loss

component by the same amount.

C16C

C17

IFRS 17

To the extent permitted by paragraph C8, an entity shall apply paragraphs

C14B‒C14D to recognise an asset for insurance acquisition cash flows, and any

adjustment to the contractual service margin of a group of insurance

contracts with direct participation features for insurance acquisition cash

flows (see paragraph C17(c)(iv)).

Insurance nance income or expenses

For groups of insurance contracts that, applying paragraph C10, include

contracts issued more than one year apart:

(a) an entity is permitted to determine the discount rates at the date of

initial recognition of a group specified in paragraphs B72(b)–B72(e)(ii)

and the discount rates at the date of the incurred claim specified in

paragraph B72(e)(iii) at the transition date instead of at the date of

initial recognition or incurred claim.

(b)

if an entity chooses to disaggregate insurance finance income or

expenses between amounts included in profit or loss and amounts

included in other comprehensive income applying paragraphs 88(b) or

89(b), the entity needs to determine the cumulative amount of

insurance finance income or expenses recognised in other

comprehensive income at the transition date to apply paragraph 91(a)

in future periods. The entity is permitted to determine that cumulative

amount either by applying paragraph C19(b) or:

(i) as nil, unless (ii) applies; and

(ii) for insurance contracts with direct participation features to

which paragraph B134 applies, as equal to the cumulative

amount recognised in other comprehensive income on the

underlying items.

For groups of insurance contracts that do not include contracts issued more

than one year apart:

(a) if an entity applies paragraph C13 to estimate the discount rates that

applied at initial recognition (or subsequently), it shall also determine

the discount rates specified in paragraphs B72(b)–B72(e) applying

paragraph C13; and

(b) if an entity chooses to disaggregate insurance finance income or

expenses between amounts included in profit or loss and amounts

included in other comprehensive income, applying paragraphs 88(b) or

89(b), the entity needs to determine the cumulative amount of

insurance finance income or expenses recognised in other

comprehensive income at the transition date to apply paragraph 91(a)

in future periods. The entity shall determine that cumulative amount:

(i)

for insurance contracts for which an entity will apply the

methods of systematic allocation set out in paragraph B131—if

the entity applies paragraph C13 to estimate the discount rates

at initial recognition—using the discount rates that applied at

the date of initial recognition, also applying paragraph C13;

C17A

C18

C19

IFRS 17

(ii) for insurance contracts for which an entity will apply the

methods of systematic allocation set out in paragraph B132—on

the basis that the assumptions that relate to financial risk that

applied at the date of initial recognition are those that apply on

the transition date, ie as nil;

(iii) for insurance contracts for which an entity will apply the

methods of systematic allocation set out in paragraph B133—if

the entity applies paragraph C13 to estimate the discount rates

at initial recognition (or subsequently)—using the discount

rates that applied at the date of the incurred claim, also

applying paragraph C13; and

(iv)

for insurance contracts with direct participation features to

which paragraph B134 applies—as equal to the cumulative

amount recognised in other comprehensive income on the

underlying items.

Applying paragraph B137, an entity may choose not to change the treatment

of accounting estimates made in previous interim financial statements. To the

extent permitted by paragraph C8, such an entity shall determine amounts

related to insurance finance income or expenses at the transition date as if it

had not prepared interim financial statements before the transition date.

Fair value approach

To apply the fair value approach, an entity shall determine the contractual

service margin or loss component of the liability for remaining coverage at the

transition date as the difference between the fair value of a group of insurance

contracts at that date and the fulfilment cash flows measured at that date. In

determining that fair value, an entity shall not apply paragraph 47 of IFRS 13

Fair Value Measurement (relating to demand features).

For a group of reinsurance contracts held to which paragraphs 66A–66B apply

(without the need to meet the condition set out in paragraph B119C), an entity

shall determine the loss-recovery component of the asset for remaining

coverage at the transition date by multiplying:

(a) the loss component of the liability for remaining coverage for the

underlying insurance contracts at the transition date (see paragraphs

C16 and C20); and

(b) the percentage of claims for the underlying insurance contracts the

entity expects to recover from the group of reinsurance contracts held.

Applying paragraphs 14‒22, at the transition date an entity might include in

an onerous group of insurance contracts both onerous insurance contracts

covered by a group of reinsurance contracts held and onerous insurance

contracts not covered by the group of reinsurance contracts held. To apply

paragraph C20A in such cases, an entity shall use a systematic and rational

basis of allocation to determine the portion of the loss component of the

group of insurance contracts that relates to insurance contracts covered by the

group of reinsurance contracts held.

C19A

C20

C20A

C20B

IFRS 17

In applying the fair value approach, an entity may apply paragraph C22 to

determine:

(a) how to identify groups of insurance contracts, applying paragraphs

14–24;

(b) whether an insurance contract meets the definition of an insurance

contract with direct participation features, applying paragraphs

B101–B109;

without direct participation features, applying paragraphs B98–B100;

and

(d)

whether an investment contract meets the definition of an investment

contract with discretionary participation features within the scope of

IFRS 17, applying paragraph 71.

An entity may choose to determine the matters in paragraph C21 using:

(a)

reasonable and supportable information for what the entity would

have determined given the terms of the contract and the market

conditions at the date of inception or initial recognition, as

appropriate; or

(b) reasonable and supportable information available at the transition

date.

In applying the fair value approach, an entity may choose to classify as a

liability for incurred claims a liability for settlement of claims incurred before

an insurance contract was acquired in a transfer of insurance contracts that

do not form a business or in a business combination within the scope of

IFRS 3.

In applying the fair value approach, an entity is not required to apply

paragraph 22, and may include in a group contracts issued more than one

year apart. An entity shall only divide groups into those including only

contracts issued within a year (or less) if it has reasonable and supportable

information to make the division. Whether or not an entity applies

paragraph 22, it is permitted to determine the discount rates at the date of

initial recognition of a group specified in paragraphs B72(b)–B72(e)(ii) and the

discount rates at the date of the incurred claim specified in paragraph B72(e)

(iii) at the transition date instead of at the date of initial recognition or

incurred claim.

In applying the fair value approach, if an entity chooses to disaggregate

insurance finance income or expenses between profit or loss and other

comprehensive income, it is permitted to determine the cumulative amount

of insurance finance income or expenses recognised in other comprehensive

income at the transition date:

(a)

retrospectively—but only if it has reasonable and supportable

information to do so; or

(b)

as nil—unless (c) applies; and

C21

C22

C22A

C23

C24

IFRS 17

paragraph B134 applies—as equal to the cumulative amount

recognised in other comprehensive income from the underlying items.

Asset for insurance acquisition cash ows

In applying the fair value approach for an asset for insurance acquisition cash

flows (see paragraph C5B(b)), at the transition date, an entity shall determine

an asset for insurance acquisition cash flows at an amount equal to the

insurance acquisition cash flows the entity would incur at the transition date

for the rights to obtain:

(a) recoveries of insurance acquisition cash flows from premiums of

insurance contracts issued before the transition date but not

recognised at the transition date;

(b)

future insurance contracts that are renewals of insurance contracts

recognised at the transition date and insurance contracts described in

(a); and

(c)

future insurance contracts, other than those in (b), after the transition

date without paying again insurance acquisition cash flows the entity

has already paid that are directly attributable to the related portfolio

of insurance contracts.

At the transition date, the entity shall exclude from the measurement of any

groups of insurance contracts the amount of any asset for insurance

acquisition cash flows.

Comparative information

Notwithstanding the reference to the annual reporting period immediately

preceding the date of initial application in paragraph C2(b), an entity may also

present adjusted comparative information applying IFRS 17 for any earlier

periods presented, but is not required to do so. If an entity does present

adjusted comparative information for any earlier periods, the reference to ‘the

beginning of the annual reporting period immediately preceding the date of

initial application’ in paragraph C2(b) shall be read as ‘the beginning of the

earliest adjusted comparative period presented’.

An entity is not required to provide the disclosures specified in paragraphs

93–132 for any period presented before the beginning of the annual reporting

period immediately preceding the date of initial application.

If an entity presents unadjusted comparative information and disclosures for

any earlier periods, it shall clearly identify the information that has not been

adjusted, disclose that it has been prepared on a different basis, and explain

that basis.

An entity need not disclose previously unpublished information about claims

development that occurred earlier than five years before the end of the annual

reporting period in which it first applies IFRS 17. However, if an entity does

not disclose that information, it shall disclose that fact.

C24A

C24B

C25

C26

C27

C28

IFRS 17

Entities that rst apply IFRS 17 and IFRS 9 at the same time

An entity that first applies IFRS 17 and IFRS 9 at the same time is permitted to

apply paragraphs C28B–C28E (classification overlay) for the purpose of

presenting comparative information about a financial asset if the comparative

information for that financial asset has not been restated for IFRS 9.

Comparative information for a financial asset will not be restated for IFRS 9 if

either the entity chooses not to restate prior periods (see paragraph 7.2.15 of

IFRS 9), or the entity restates prior periods but the financial asset has been

derecognised during those prior periods (see paragraph 7.2.1 of IFRS 9).

An entity applying the classification overlay to a financial asset shall present

comparative information as if the classification and measurement

requirements of IFRS 9 had been applied to that financial asset. The entity

shall use reasonable and supportable information available at the transition

date (see paragraph C2(b)) to determine how the entity expects the financial

asset would be classified and measured on initial application of IFRS 9 (for

example, an entity might use preliminary assessments performed to prepare

for the initial application of IFRS 9).

In applying the classification overlay to a financial asset, an entity is not

required to apply the impairment requirements in Section 5.5 of IFRS 9. If,

based on the classification determined applying paragraph C28B, the financial

asset would be subject to the impairment requirements in Section 5.5 of

IFRS 9 but the entity does not apply those requirements in applying the

classification overlay, the entity shall continue to present any amount

recognised in respect of impairment in the prior period in accordance with

IAS 39 Financial Instruments: Recognition and Measurement. Otherwise, any such

amounts shall be reversed.

Any difference between the previous carrying amount of a financial asset and

the carrying amount at the transition date that results from applying

paragraphs C28B–C28C shall be recognised in opening retained earnings (or

other component of equity, as appropriate) at the transition date.

An entity that applies paragraphs C28B–C28D shall:

(a) disclose qualitative information that enables users of financial

statements to understand:

(i) the extent to which the classification overlay has been applied

(for example, whether it has been applied to all financial assets

derecognised in the comparative period);

(ii) whether and to what extent the impairment requirements in

Section 5.5 of IFRS 9 have been applied (see paragraph C28C);

(b) only apply those paragraphs to comparative information for reporting

periods between the transition date to IFRS 17 and the date of initial

application of IFRS 17 (see paragraphs C2 and C25); and

(c)

at the date of initial application of IFRS 9, apply the transition

requirements in IFRS 9 (see Section 7.2 of IFRS 9).

C28A

C28B

C28C

C28D

C28E

IFRS 17

Redesignation of nancial assets

At the date of initial application of IFRS 17, an entity that had applied IFRS 9

to annual reporting periods before the initial application of IFRS 17:

(a) may reassess whether an eligible financial asset meets the condition in

paragraph 4.1.2(a) or paragraph 4.1.2A(a) of IFRS 9. A financial asset is

eligible only if the financial asset is not held in respect of an activity

that is unconnected with contracts within the scope of IFRS 17.

Examples of financial assets that would not be eligible for

reassessment are financial assets held in respect of banking activities

or financial assets held in funds relating to investment contracts that

are outside the scope of IFRS 17.

(b)

shall revoke its previous designation of a financial asset as measured at

fair value through profit or loss if the condition in paragraph 4.1.5 of

IFRS 9 is no longer met because of the application of IFRS 17.

(c)

may designate a financial asset as measured at fair value through

profit or loss if the condition in paragraph 4.1.5 of IFRS 9 is met.

(d)

may designate an investment in an equity instrument as at fair value

through other comprehensive income applying paragraph 5.7.5 of

IFRS 9.

(e) may revoke its previous designation of an investment in an equity

instrument as at fair value through other comprehensive income

applying paragraph 5.7.5 of IFRS 9.

An entity shall apply paragraph C29 on the basis of the facts and

circumstances that exist at the date of initial application of IFRS 17. An entity

shall apply those designations and classifications retrospectively. In doing so,

the entity shall apply the relevant transition requirements in IFRS 9. The date

of initial application for that purpose shall be deemed to be the date of initial

application of IFRS 17.

An entity that applies paragraph C29 is not required to restate prior periods to

reflect such changes in designations or classifications. The entity may restate

prior periods only if it is possible without the use of hindsight. If an entity

restates prior periods, the restated financial statements must reflect all the

requirements of IFRS 9 for those affected financial assets. If an entity does not

restate prior periods, the entity shall recognise, in the opening retained

earnings (or other component of equity, as appropriate) at the date of initial

application, any difference between:

(a) the previous carrying amount of those financial assets; and

(b) the carrying amount of those financial assets at the date of initial

application.

When an entity applies paragraph C29, it shall disclose in that annual

reporting period for those financial assets by class:

(a)

if paragraph C29(a) applies—its basis for determining eligible financial

assets;

C29

C30

C31

C32

IFRS 17

(b) if any of paragraphs C29(a)–C29(e) apply:

(i) the measurement category and carrying amount of the affected

financial assets determined immediately before the date of

initial application of IFRS 17; and

(ii) the new measurement category and carrying amount of the

affected financial assets determined after applying

paragraph C29.

the statement of financial position that were previously designated as

measured at fair value through profit or loss applying paragraph 4.1.5

of IFRS 9 that are no longer so designated.

When an entity applies paragraph C29, the entity shall disclose in that annual

reporting period qualitative information that would enable users of financial

statements to understand:

(a)

how it applied paragraph C29 to financial assets the classification of

which has changed on initially applying IFRS 17;

(b)

the reasons for any designation or de-designation of financial assets as

measured at fair value through profit or loss applying paragraph 4.1.5

of IFRS 9; and

assessment applying paragraphs 4.1.2(a) or 4.1.2A(a) of IFRS 9.

For a financial asset derecognised between the transition date and date of

initial application of IFRS 17, an entity may apply paragraphs C28B–C28E

(classification overlay) for the purpose of presenting comparative information

as if paragraph C29 had been applied to that asset. Such an entity shall adapt

the requirements of paragraphs C28B–C28E so that the classification overlay is

based on how the entity expects the financial asset would be designated

applying paragraph C29 at the date of initial application of IFRS 17.

Withdrawal of other IFRS Standards

IFRS 17 supersedes IFRS 4 Insurance Contracts, as amended in 2020.

C33

C33A

C34

IFRS 17

Appendix D

Amendments to other IFRS Standards

This Appendix describes the amendments to other Standards that the IASB made when it issued

IFRS 17 in 2017 and amended IFRS 17 in 2020. An entity shall apply the amendments for annual

periods beginning on or after 1 January 2023. If an entity applies IFRS 17 for an earlier period, these

amendments shall be applied for that earlier period.

* * * * *

The amendments contained in this appendix when this Standard was issued in 2017 and amended in

2020 have been incorporated into the text of the relevant Standards included in this volume.

IFRS 17

Approval by the International Accounting Standards Board of

IFRS 17 Insurance Contracts issued in May 2017

IFRS 17 Insurance Contracts was approved for issue by 11 of the 12 members of the

International Accounting Standards Board as at March 2017. Ms Flores abstained from

voting in view of her recent appointment to the Board.

Hans Hoogervorst Chairman

Suzanne Lloyd Vice-Chair

Stephen Cooper

Martin Edelmann

Françoise Flores

Amaro Luiz de Oliveira Gomes

Gary Kabureck

Takatsugu Ochi

Darrel Scott

Chungwoo Suh

Mary Tokar

Wei-Guo Zhang

IFRS 17

Approval by the International Accounting Standards Board of

Amendments to IFRS 17 issued in June 2020

Amendments to IFRS 17 was approved for issue by all 14 members of the International

Accounting Standards Board.

Hans Hoogervorst Chairman

Suzanne Lloyd Vice-Chair

Nick Anderson

Tadeu Cendon

Martin Edelmann

Françoise Flores

Gary Kabureck

Jianqiao Lu

Darrel Scott

Thomas Scott

Chungwoo Suh

Rika Suzuki

Ann Tarca

Mary Tokar

IFRS 17

Approval by the Board of Initial Application of IFRS 17 and IFRS 9

—Comparative Information issued in December 2021

Initial Application of IFRS 17 and IFRS 9—Comparative Information, which amends IFRS 17

Insurance Contracts, was approved for issue by all 12 members of the International

Accounting Standards Board.

Andreas Barckow Chair

Suzanne Lloyd Vice-Chair

Nick Anderson

Tadeu Cendon

Zach Gast

Jianqiao Lu

Bruce Mackenzie

Bertrand Perrin

Thomas Scott

Rika Suzuki

Ann Tarca

Mary Tokar

IFRS 17