PAS 17-19

Question 1

What does PFRS 17 prescribe?

Answer 1

PFRS 17 prescribes the principles for the recognition, measurement, presentation and disclosure of insurance contracts by an insurer.

Question 2

To whom does PFRS 17 apply?

Answer 2

PFRS 17 applies to:

a. insurance and reinsurance contracts issued by an insurer;
b. reinsurance contracts held by an insurer;
c. investment contracts with discretionary participation features issued by an insurer.

Question 3

Who is considered the insurer?

Answer 3

The insurer is the party that has an obligation under an insurance contract to compensate a policyholder if an insured event occurs.

Question 4

How is an insurance contract defined?

Answer 4

An insurance contract is 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 adversely affects the policyholder.

Question 5

What is a policyholder?

Answer 5

A policyholder is a party that has a right to compensation under an insurance contract if an insured event occurs.

Question 6

What is an insured event?

Answer 6

An insured event is an uncertain future event that is covered by an insurance contract and creates insurance risk.

Question 7

What are the essential elements in the definition of an insurance contract?

Answer 7

The essential elements include:

a. Transfer of significant insurance risk from the insured to the insurer;
b. Payment from the insured (premium);
c. Indemnification against loss.

Question 8

What does ‘significant insurance risk’ mean?

Answer 8

Significant insurance risk refers to the transfer of significant insurance risk from the insured (policyholder) to the insurer (insurance provider).

Question 9

What is insurance risk?

Answer 9

Insurance risk is risk, other than financial risk, transferred from the holder of a contract to the issuer.

Question 10

What are examples of insurance contracts?

Answer 10

Examples of insurance contracts include:

a. Insurance against theft or damage;
b. Life insurance and prepaid funeral plans;
c. Disability and medical cover.

Question 11

What items are not considered insurance contracts?

Answer 11

Items that are not considered insurance contracts include contracts that do not transfer significant insurance risk to the issuer.

Question 12

What are the types of insurance contracts?

Answer 12

a. Direct insurance contract - an insurance contract where the insurer directly accepts risk from the insured and assumes the sole obligation to compensate the insured in case of a loss event.

b. Reinsurance contract - an insurance contract issued by one insurer (the reinsurer) to compensate another insurer (the cedant) for losses on one or more contracts issued by the cedant.

Question 13

Who are the parties involved in a reinsurance contract?

Answer 13

Reinsurer - the party that has an obligation under a reinsurance contract to compensate a cedant if an insured event occurs.

Cedant - the policyholder under a reinsurance contract.

Question 14

What is self-insurance?

Answer 14

Self-insurance is a risk management strategy where a company or individual sets aside a pool of money to be used for future losses.

Question 15

What are examples of items that are not insurance contracts?

Answer 15

Contracts that do not transfer significant insurance risk to the issuer.

Question 16

What is the purpose of separating components from an insurance contract?

Answer 16

An insurance contract may contain one or more non-insurance components (e.g., investment component and/or service component) that need to be separated and accounted for under other Standards.

Question 17

Which standards are applied to separate components from an insurance contract?

Answer 17

PFRS 9 is applied to separate an embedded derivative or a distinct investment component from a host insurance contract, and PFRS 15 is applied to allocate the cash flows to the separated components.

Question 18

What are the levels of aggregation of insurance contracts?

Answer 18

Insurance contracts are combined into portfolios consisting of contracts with similar risks and managed together.

Question 19

What are the groups within a portfolio of insurance contracts?

Answer 19

a. A group of contracts that are onerous at initial recognition, if any.

b. A group of contracts that at initial recognition have no significant possibility of becoming onerous subsequently, if any.

c. A group of the remaining contracts in the portfolio, if any.

Question 20

What are the accounting models prescribed by PFRS 17?

Answer 20

PFRS 17 prescribes the following measurement models: a. General model

b. Premium allocation approach

c. Modifications to the General model for onerous contracts.

Question 21

When is a group of insurance contracts recognized? (General model)

Answer 21

A group of insurance contracts is recognized from the earliest of the following: a. The beginning of the coverage period of the group of contracts.

b. The date when the first payment from a policyholder in the group becomes due.

c. For a group of onerous contracts, when the group becomes onerous.

Question 22

How is a group of insurance contracts initially measured? (Genral model)

Answer 22

A group of insurance contracts is initially measured at the total of: a. The fulfillment cash flows, and b. The contractual service margin.

Question 23

What do fulfillment cash flows comprise?

Answer 23

Fulfillment cash flows comprise estimates of future cash flows, adjustments for time value of money and financial risks, and risk adjustment for non-financial risk.

Question 24

What is the contractual service margin?

Answer 24

The contractual service margin is the unearned profit in a group of insurance contracts that the entity recognizes as it provides services in the future.

Question 25

How is the carrying amount of a group of insurance contracts determined at the end of each reporting period?

Answer 25

The carrying amount is the sum of the liability for remaining coverage, the fulfillment cash flows related to future service, the contractual service margin, and the liability for incurred claims.

Question 26

What defines an onerous insurance contract?

Answer 26

An insurance contract is onerous if the total of its fulfillment cash flows, any previously recognized acquisition cash flows, and any cash flows arising from the contract at initial recognition date is a net outflow.

Question 27

What happens to excess net outflow for onerous insurance contracts?

Answer 27

Any excess net outflow for a group of insurance contracts that becomes onerous or more onerous is recognized in profit or loss.

Question 28

What is the Premium Allocation Approach in PFRS 17?

Answer 28

The Premium Allocation Approach allows a simplified measurement of a group of insurance contracts if the entity expects simplification to approximate the general model or if the coverage period is one year or less.

Question 29

How is the liability initially measured under the Premium Allocation Approach?

Answer 29

The liability is initially measured at the premiums received at initial recognition minus any insurance acquisition cash flows, plus or minus any amount arising from the derecognition of the asset or liability for insurance acquisition cash flows.

Question 30

What is the subsequent measurement of the liability at the end of each reporting period? (Premium approach)

Answer 30

The carrying amount of the liability is the carrying amount at the start of the reporting period plus premiums received, minus insurance acquisition cash flows, plus any amounts relating to the amortization of insurance acquisition cash flows.

Question 31

What does IFRS 19 specify for eligible entities?

Answer 31

IFRS 19 specifies reduced disclosure requirements that an eligible entity is permitted to apply instead of the disclosure requirements in other IFRS Accounting Standards.

Question 32

When was IFRS 19 issued and when does it apply?

Answer 32

IFRS 19 was issued in May 2024 and applies to an annual reporting period beginning on or after 1 January 2027.

Question 33

What disclosure requirements remain applicable to an entity applying IFRS 19?

Answer 33

Disclosure requirements in other IFRS Accounting Standards that remain applicable to an entity applying IFRS 19 are specified in IFRS 19.

Question 34

What must an entity applying IFRS 19 do if it applies IFRS 8, IFRS 17, or IAS 33?

Answer 34

If an entity applying IFRS 19 applies IFRS 8 Operating Segments, IFRS 17 Insurance Contracts, or IAS 33 Earnings per Share, it is required to apply all the disclosure requirements in those standards.

Question 35

What may a new or amended IFRS Accounting Standard include?

Answer 35

A new or amended IFRS Accounting Standard may include disclosure requirements about an entity's transition to that standard.

Question 36

What conditions must be met for an entity to elect to apply IFRS 19?

Answer 36

An entity may elect to apply this Standard if, at the end of the reporting period, it is a subsidiary, does not have public accountability, and has an ultimate or intermediate parent that produces consolidated financial statements available for public use that comply with IFRS Accounting Standards.

Question 37

What defines public accountability for an entity?

Answer 37

An entity has public accountability if its debt or equity instruments are traded in a public market, or it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses.