IFRS 17 applies to issued insurance and reinsurance contracts, reinsurance contracts held and investment contracts with a discretionary participation feature that are issued by an entity that also issues insurance contracts. Contracts may be grouped for accounting purposes.
IFRS 17 is mandatory for annual reporting periods beginning on or after 1 January 2023, with re-statement of comparatives for the previous reporting period (that is, from 1 January 2022 for calendar year-ends). Implementation is to be done as if IFRS 17 always existed, thus opening balances for 2023 and comparative 2022 need to be recalculated and reported in the 2023 Annual Financial Statements (AFS).
Issuers of insurance contracts should report them in the statement of financial position at the total of:
- The fulfilment cash flows, being current estimates of amounts that the entity expects to collect from premiums and pay out for claims, benefits and expenses, adjusted for the timing and risk of those amounts; and
- The contractual service margin, being the expected profit for providing insurance cover.
Where a contract is expected to be profitable, the profit is recognised over the term during which insurance coverage is provided; where a contract is expected to be loss-making, the expected loss is recognised in profit or loss immediately.
The amount recognised in the statement of financial position should be remeasured at each reporting date, taking into account current discount rates and estimates of the amount, timing and uncertainty of cash flows.
The change in the carrying amount of insurance contracts is included in profit or loss or disaggregated between an amount presented in profit or loss and an amount presented in other comprehensive income. This is an accounting policy choice.
The premium allocation approach (PAA) is a simplified approach that is available to measure some short-term insurance contracts.
The measurement requirements are modified for reinsurance contracts held and insurance contracts with direct participation features.
The standard also has extensive disclosure requirements.
To learn more about this very important standard, visit our website: www.alertsprofessionalservices.co.za, to enrol and attend our online webinar.
