IFRS 17

Question 1

Effective date of IFRS 17

Answer 1

1 January 2021

Question 2

IFRS 17 provides (3)

Answer 2

• a globally consistent method for insurance contract accounting
• greater transparency of profit sources
• up-to-date market-consistent information about the entity’s obligations

Question 3

Contractual service margin

Answer 3

Represents the unearned profit in the insurance contract that will be released over the passage of time.

Question 4

Important difference between the current risk margin (under APN401 or regulatory interim measures) and the risk adjustment (RA) under IFRS 17

Answer 4

The Risk Adjustment under IFRS 17 should be based on the company’s own risk appetite rather than a recommended margin from the Actuarial Society or prescribed calculation from the FSB.

Question 5

To whom does IFRS 17 apply

Answer 5

All entities that issue insurance contracts.

Excludes:

• product warranties issued by manufacturer, dealer or retailer
• some financial guarantee contracts
• some fixed-fee service contracts

Question 6

Conditions if a company chooses to apply IFRS 17 earlier than the effective date

Answer 6

They should also apply IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers

Question 7

With existing accounting for insurance contract, investors and analysts find it difficult to (2)

Answer 7

• indentify which groups of insurance contracts are profit making or loss making
• analyse trend information about insurance contracts

Question 8

IFRS 17 requires a company that issues insurance contracts to report them on the balance sheet as a total of: (2)

Answer 8

• fulfilment cash flows

- contractual service margin

Question 9

fulfilment cash flows

Answer 9

the current estimates of amounts that the insurer expects to
… collect from premiums and
… pay out for claims, benefits and expenses,
… including an adjustment for the timing and risk of those cash flows.

The measurement of the fulfilment cash flows reflects the current value of any interest-rate guarantees and financial options included in the insurance contracts.

Question 10

IFRS 17 distinguishes 2 ways insurers earn profits from insurance contracts:

Answer 10

• the insurance service result

- financial result

Question 11

insurance service result

Answer 11

depicts the profit earned from providing insurance coverage

Question 12

financial result

Answer 12

captures:

• investment income from managing financial assets
• insurance finance expenses from insurance obligations - the effects of discount rates and other financial variables on the value of insurance obligations.