Lindbergh

Question 1

IFRS denition of “insurance contract”

Answer 1

A contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.

Question 2

Compare “insurance risk” and “financial risk”

Answer 2

• Financial risk: risk of a possible future change in one of more of: specified interest rate/ financial instrument price/ commodity price/ foreign exchange rate/ index of prices or rates/ credit rating/ credit index
• Insurance risk: risk, other than financial risk, that is transferred from the holder of a contract to the issuers

Question 3

What is IASB’s definition of significant insurance risk

Answer 3

Significant if, and only if, an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance.

Question 4

Explain why the IASB standard of significant insurance risk is weaker than the GAAP standard

Answer 4

GAAP requires that it is reasonably possible that the reinsurer may realize a significant loss.

Question 5

List 2 examples of accounting policies that are prohibited because they do not meet the IFRS framework

Answer 5

1. catastrophe provisions, or any reserve for any events that are beyond the scope of the current contract.
2. offsetting of reinsurance assets & direct liabilities