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TMI BlogInsurance ContractsX X X X Extracts X X X X X X X X Extracts X X X X ..... 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 3. An entity shall apply Ind AS 117 to: (a) insurance contracts, including reinsurance contracts, it issues; (b) reinsurance contracts it holds; and (c) investment contracts with discretionary participation features it issues, provided the entity also issues insurance contracts. 4. All references in Ind AS 117 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 discretio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ind AS 109 and other applicable Ind AS). However, if, and only if, Ind AS 109 requires an entity to separate an insurance coverage component (see paragraph 2.1(e)(iv) of Ind AS 109) that is embedded in such a contract, the entity shall apply Ind AS 117 to that component. 8. 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 Ind AS 115 instead of Ind AS 117 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: (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 (c) the insurance risk transferred by the contract arises primarily from the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se to transfer to a policyholder distinct goods or services other than insurance contract services, applying paragraph 7 of Ind AS 115. The entity shall account for such promises applying Ind AS 115. In applying paragraph 7 of Ind AS 115 to separate the promise, the entity shall apply paragraphs B33 B35 of Ind AS 117 and, on initial recognition, shall: (a) apply Ind AS 115 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 Ind AS 115 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. 13. After applying paragraphs 11 12, an entity shall apply Ind AS 117 to all remaining components of the host insurance contract. Hereafter, all references in Ind AS 117 to embedded derivatives re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ihood of changes in applicable facts and circumstances. 19. 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. 20. If, applying paragraphs 14 19, contracts within a portfolio would fall into different groups only because law or regulation specifically constrains the entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 27. [Refer Appendix 1] 28. 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. 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 flows (paragraphs B35A‒ B35D) 28A An entity shall allocate insurance acquisitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ind AS 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. 31. 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 Ind AS 113, Fair Value Measurement). Measurement on initial recognition (paragraphs B36 B95F) 32. 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 flows (paragraphs B36 B71) 33. An entity shall include in the meas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risks are reassessed does not take into account the risks that relate to periods after the reassessment date. 35. 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) 36. 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; (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 (c) exclude the effect of factors that influence such observable market prices but do not affect the future ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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. 42. 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 (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. Contractual service margin (paragraphs B96 B119B) 43. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). (c) the changes in fulfilment cash flows relating to future service, as 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 (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. 46. Some changes in the contractual service margin offset changes in the fulfilment cash flows for the liability for remaining coverage, resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 nonfinancial 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. 51. 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 (vi) minus any investment component paid or transferred to the liability for incurred claims. 56. 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 fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier 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. 62A 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 63. 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 incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts held; (c) changes in the fulfilment cash flows, measured at the discount rates 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. 66A 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 ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res 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 71. An investment contract with discretionary participation features does not include a transfer of significant insurance risk. Consequently, the requirements in Ind AS 117 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. (c) the allocation of the contractual service margin (see paragraphs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore 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. 76. An entity derecognises an insurance contract from within a group of contracts by applying the following requirements in Ind AS 117: (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 (c) the number of coverage units for expected remaining insurance 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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. 82. An entity shall present income or expenses from reinsurance contracts held separately from the expenses or income from insurance contracts issued. Insurance service result 83. 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. 84. 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). 85. Insurance revenue and insurance service expenses presented in profit or loss shall exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 89 . 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. 90. 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. 91. If an entity transfers a group of insurance contracts or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional information necessary to meet that objective. 95. 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. 96. Paragraphs 29 31 of Ind AS 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 Ind AS 108, Operating Segments. Explanation of recognised amounts 97. 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) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 102. The objective of the reconciliations in paragraphs 100 101 is to provide different types of information about the insurance service result. 103. 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. (c) investment components excluded from insurance revenue and 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)). 104. An entity shall separately disclose in the reconciliations required in paragraph 101 each of the following amounts related to services, if applicable: (a) changes that relate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proach 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). 107. 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 balance sheet separately for insuran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss 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 (c) the carrying amount of the group of insurance contracts to which the change applied at the date of the change. Transition amounts 114. 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontracts 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 (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). 118. 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. 119. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks 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 Ind AS 117, it shall disclose that fact. All types of risk concentrations of risk 127. An entity shall disclose information about concentrations of risk arising from contracts within the scope of Ind AS 117, 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 128. An entity shall disclose information about sensiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ggregate carrying amount of the groups of insurance contracts, which the entity discloses applying paragraph 100(c). Credit risk other information 131. For credit risk that arises from contracts within the scope of Ind AS 117, 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 132. For liquidity risk arising from contracts within the scope of Ind AS 117, an entity shall disclose: (a) a description of how it manages the liquidity risk. (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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (c) do not fall into either (a) or (b), if any. 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract 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 (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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... curs during the term of the contract, even if the resulting loss is discovered after the end of the contract term. B5 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 B6 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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)). B11 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. B12 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 financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual 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. Significant insurance risk B17 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. B18 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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. (c) a payment conditional on an event that does not cause a significant loss to the holder of the contract. For example, consider a contract that requires the issuer to pay CU [CU denotes currency unit.] 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the contract. B25 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 B26 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. (c) life insurance and prepaid funeral plans (although death is certain, it is 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 repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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). (c) self-insurance (ie retaining a risk that could have been covered by 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. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redit 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 Ind AS 117 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)) B31 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 dete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance components. Insurance acquisition cash flows (paragraphs 28A‒28F) B35A 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. B35B 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). B35C 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. B39 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 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fulfils the underlying contracts with the policyholder. Market variables and non-market variables B42 Ind AS 117 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). B43 Market variables will generally give rise to financial risk (for example, observable interest rates) and nonmarket 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)) B44 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 excep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng consistent with observable market prices (if any) for such options and guarantees. Non-market variables B49 Estimates of non-market variables shall reflect all reasonable and supportable evidence available without undue cost or effort, both external and internal. B50 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 demograp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. B55 The probability assigned to each scenario shall reflect the conditions at the end of the reporting period. Consequently, applying Ind AS 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 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 issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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). B60 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 flows within the contract boundary (paragraph 34) B61 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. B62 Many insurance contracts have features that enable policyholders to take actions tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. B65 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 beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llocation 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. B66 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. (c) cash flows that may arise from future insurance contracts, ie cash 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, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in their share of returns on the underlying items because of payments to the policyholder, including payments arising from guarantees made to the policyholder. B68 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. B69 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. B73 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actors, 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. Ind AS 117 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. (c) exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke them comparable to market prices for the assets being measured (consistent with paragraph 83 of Ind AS 113). (c) if there is no market for assets in the reference portfolio, an entity shall apply an estimation technique. For such assets (consistent with paragraph 89 of Ind AS 113) 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 Ind AS 117, the entity might place more weight on long-term estimates than on short-term fluctuations; and (ii) adjust those data to reflect all information about market participant assumptions that is reasonably available. B83 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 adj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expense risk (see paragraph B14). B87 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 nonfinancial risk about the amount and timing of cash flows. B88 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 timin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and timing of cash flows, risk adjustments for non-financial risk will decrease and vice versa. B92 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 nonfinancial 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) B93 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 Ind AS 103, 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 transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal reserve either directly or through Other Comprehensive Income as per the requirements of Ind AS 103 for reinsurance contracts held acquired in a business combination within the scope of Ind AS 103, or as income in profit or loss for contracts acquired in a transfer. B95D 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 flows B95E 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 Ind AS 103, the entity shall recognise an asset for insurance acquisition cash flows at fair value at the date of the transaction for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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). B97 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; (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpectations at inception of the contract and shall not reassess the conditions afterwards, unless the contract is modified, applying paragraph 72. B103 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. B104 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. B105 A share referred to in paragraph B101(a) does not preclude the existence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ows 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. B109 Reinsurance contracts issued and reinsurance contracts held cannot be insurance contracts with direct participation features for the purposes of Ind AS 117. B110 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. B111 Changes in the obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive 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. B117 The entity shall determine the fulfilment cash flows in a group to which paragraph B115 applies in a consistent manner in each reporting period. B117A 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraphs 66A 66B) B119C 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. B119D 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. B119E 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. B119F After an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance 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. (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). B123A 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 parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. B127 An entity shall change the basis of allocation between paragraphs B126(a) and B126(b) as necessary if facts and circumstances change. Insurance finance income or expenses (paragraphs 87 92) B128 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 Ind AS 117: (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 (c) changes in the measurement of a group of insurance contracts caused by changes in the value of underlying items (excluding additions and withdrawals) are changes arising from the effect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 nonfinancial 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. (c) a systematic allocation for the finance income or expenses arising from 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative information. B136 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. The effect of accounting estimates made in interim financial statements B137 If an entity prepares interim financial statements applying Ind AS 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 Ind AS 117 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. Appendix C Effective date and transition This appendix is an integral part of Ind AS 117, Insurance Contracts. Effective date C1 An entity shall apply Ind AS 117 for annual reporting periods beginning on or after 1 April 2024. Early adoption is permitted. If an entity applies Ind AS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a group of insurance contracts with direct participation features to which it could apply Ind AS 117 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. C5B 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. Modified retrospective approach C6 The objective of the modified retrospective approach is to achieve the closest outcome to retrospective application possible using reasonable and supportable information available without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 C11 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. C12 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 known to have occurred include cash flows resulting from contracts that ceased to exist before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance 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 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. C14D 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. C15 If applying paragraphs C12 C14D results in a contractual service margin at the date of initial recognition, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nent for the group of reinsurance contracts held. Determining the contractual service margin or loss component for groups of insurance contracts with direct participation features C17 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 Ind AS) before the transition date that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mprehensive income on the underlying items. C19 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; (ii) for insurance contracts for which an enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p 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. C21 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; (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 Ind AS 117, applying paragraph 71. C22 An entity may choose to determine the matters in paragraph C21 using: (a) reasonable and supportable information for what the entity would have determined give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. C24B 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 C25 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 Ind AS 117 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntity shall continue to present any amount recognised in respect of impairment in the prior period in accordance with relevant provisions applicable to such an entity at that time. Otherwise, any such amounts shall be reversed. C28D 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. C28E 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 Ind AS 109 have been applied (see paragraph C28C); (b) only apply those paragraphs to comparative information for reporting periods between the transition date to Ind AS 117 and the date of initial application of Ind AS 117 (see paragraphs C2 and C25); and (c) at the date of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. C32 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; (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 Ind AS 117; and (ii) the new measurement category and carrying amount of the affected financial assets determined after applying paragraph C29. (c) if paragraph C29(b) applies the carrying amount of financial assets in the balance sheet that were previously designated as measured at fair value through profit or loss applying paragraph 4.1.5 of Ind AS 109 that are no longer so designated. C33 When an entity applies paragraph C29, the entity shall disclose in that annual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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