Part 17 (Odomirok 24) Flashcards
What accounting framework is used internationally
IFRS
International Financial Reporting Standards
Who issued the IFRS
IASB issued the International Financial Reporting Standards
What is the IFRS designed to do
Provide global users across industries with transparent and comparable information
Who does the SEC allow to file IFRS statemetns
Only foreign insurers currently
Who does the IFRS apply to
All different industries including insurance industry
What was the IASB unable to produce in time for when the IFRS was first rolled out?
Insurance specific Standards
What did it release as an interim standard because of it not issuing insurance specific standards initially?
IFRS 4
What problems did IFRS 4 have?
Not consistent
Allowed insurers to use a wide variety of accounting practices for insurance contracts
This caused much variation among countries
What did the IASB issue to supersede IFRS 4 due to lack of consistency
IFRS 17
What were the objectives of IFRS 17
- Required consistent insurance practices across jurisdictions
- Improved quality of financial information
- Provided a definition for an insurance contract
How did IFRS 17 improve the quality of financial information
Included useful information in the financials
Increased the transparency of the insurers’ profitability
What is the definition of an insurance contract under IFRS 17
A contract under which one party accepts significant insurance risk from another party by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder
What is the key difference between the definition of an insurance contract under IFRS 17 and the US definition
The use of compensate in IFRS 17 instead of indemnify. It could mean that a company pays only 1 dollar to compensate a large loss and still meet criteria.
What is a measurement model that the IFRS introduced
General Model and General Model: Premium Allocation Approach
In the General Model, insurance contracts need to be reported in the balance sheet as the total of what two items
Fulfillment cash flows
Contractual service margin (CSM)
What is the Fulfillment cash flows
current estimate of the amounts that the insurer expects to collect/pay for premiums, claims, befits, and expenses
Fulfillment cash flows should include adjustment for what
and at each reporting date do what
timing and risk
update its valuation of the fulfillment cash flows based on current information (such as updated discount rates)
What is CSM
Contractual service margin is the expected profit for providing the future coverage
What is CSM initially calculated on
What is the minimum on the calculation
And what happens if calculation produces a negative number at inception
Net difference between fulfillment cash inflows and outflows
Minimum of 0
Recognized as a loss in the income statement immediately
What is the premium allocation approach
a simplification of the general model
When can insurers implement the Premium allocation approach option
If expected to produce results not materially different from the General Model
and does not contain any complex features
How does premium alloc approach split contracts into two pieces
- Liability for remaining coverage
- Liability for incurred claims
What is the liability for remaining coverage
about equal to UEPR less any premium receivable and deferred acquisition costs
What is the liability for incurred claims
Calculated using the fulfilment cash flows form the General Model (no CSM since coverage has already been earned)
