AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
Insurance Contracts
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....ntract is a matter of law. Contracts can be written, oral or implied by an entity's customary business practices. Contractual terms include all terms in a contract, explicit or implied, but an entity shall disregard terms that have no commercial substance (ie no discernible effect on the economics of the contract). Implied terms in a contract include those imposed by law or regulation. The practices and processes for establishing contracts with customers vary across legal jurisdictions, industries and entities. In addition, they may vary within an entity (for example, they may depend on the class of customer or the nature of the promised goods or services). Scope 3. An entity shall apply Ind AS 117 to: (a) insurance contracts, including reinsurance contracts, it issues; (b) reinsurance contracts it holds; and (c) investment contracts with discretionary participation features it issues, provided the entity also issues insurance contracts. 4. All references in Ind AS 117 to insurance contracts also apply to: (a) reinsurance contracts held, except: (i) for references to insurance contracts issued; and (ii) as described in paragraphs 60-70A. (b) investment contracts wi....
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....insurance contract if, and only if, the entity does not reflect an assessment of the insurance risk associated with an individual customer in setting the price of the contract with that customer (see Ind AS 109 and other applicable Ind AS). However, if, and only if, Ind AS 109 requires an entity to separate an insurance coverage component (see paragraph 2.1(e)(iv) of Ind AS 109) that is embedded in such a contract, the entity shall apply Ind AS 117 to that component. 8. Some contracts meet the definition of an insurance contract but have as their primary purpose the provision of services for a fixed fee. An entity may choose to apply Ind AS 115 instead of Ind AS 117 to such contracts that it issues if, and only if, specified conditions are met. The entity may make that choice contract by contract, but the choice for each contract is irrevocable. The conditions are: (a) the entity does not reflect an assessment of the risk associated with an individual customer in setting the price of the contract with that customer; (b) the contract compensates the customer by providing services, rather than by making cash payments to the customer; and (c) the insurance risk transferred by t....
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....eparate from the host insurance contract any promise to transfer to a policyholder distinct goods or services other than insurance contract services, applying paragraph 7 of Ind AS 115. The entity shall account for such promises applying Ind AS 115. In applying paragraph 7 of Ind AS 115 to separate the promise, the entity shall apply paragraphs B33-B35 of Ind AS 117 and, on initial recognition, shall: (a) apply Ind AS 115 to attribute the cash inflows between the insurance component and any promises to provide distinct goods or services other than insurance contract services; and (b) attribute the cash outflows between the insurance component and any promised goods or services other than insurance contract services, accounted for applying Ind AS 115 so that: (i) cash outflows that relate directly to each component are attributed to that component; and (ii) any remaining cash outflows are attributed on a systematic and rational basis, reflecting the cash outflows the entity would expect to arise if that component were a separate contract. 13. After applying paragraphs 11-12, an entity shall apply Ind AS 117 to all remaining components of the host insurance contract. Hereaft....
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....ant possibility of becoming onerous subsequently by assessing the likelihood of changes in applicable facts and circumstances. 19. For contracts issued to which an entity does not apply the premium allocation approach (see paragraphs 53- 54), an entity shall assess whether contracts that are not onerous at initial recognition have no significant possibility of becoming onerous: (a) based on the likelihood of changes in assumptions which, if they occurred, would result in the contracts becoming onerous. (b) using information about estimates provided by the entity's internal reporting. Hence, in assessing whether contracts that are not onerous at initial recognition have no significant possibility of becoming onerous: (i) an entity shall not disregard information provided by its internal reporting about the effect of changes in assumptions on different contracts on the possibility of their becoming onerous; but (ii) an entity is not required to gather additional information beyond that provided by the entity's internal reporting about the effect of changes in assumptions on different contracts. 20. If, applying paragraphs 14-19, contracts within a portfolio would fall into ....
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....cyholder is deemed to be due when it is received. An entity is required to determine whether any contracts form a group of onerous contracts applying paragraph 16 before the earlier of the dates set out in paragraphs 25(a) and 25(b) if facts and circumstances indicate there is such a group. 27. [Refer Appendix 1] 28. In recognising a group of insurance contracts in a reporting period, an entity shall include only contracts that individually meet one of the criteria set out in paragraph 25 and shall make estimates for the discount rates at the date of initial recognition (see paragraph B73) and the coverage units provided in the reporting period (see paragraph B119). An entity may include more contracts in the group after the end of a reporting period, subject to paragraphs 14-22. An entity shall add a contract to the group in the reporting period in which that contract meets one of the criteria set out in paragraph 25. This may result in a change to the determination of the discount rates at the date of initial recognition applying paragraph B73. An entity shall apply the revised rates from the start of the reporting period in which the new contracts are added to the group. Ins....
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....discretionary participation features, an entity shall apply paragraphs 32-52 as modified by paragraph 71. 30. When applying Ind AS 21, The Effects of Changes in Foreign Exchange Rates to a group of insurance contracts that generate cash flows in a foreign currency, an entity shall treat the group of contracts, including the contractual service margin, as a monetary item. 31. In the financial statements of an entity that issues insurance contracts, the fulfilment cash flows shall not reflect the non-performance risk of that entity (non-performance risk is defined in Ind AS 113, Fair Value Measurement). Measurement on initial recognition (paragraphs B36-B95F) 32. On initial recognition, an entity shall measure a group of insurance contracts at the total of: (a) the fulfilment cash flows, which comprise: (i) estimates of future cash flows (paragraphs 33-35); (ii) an adjustment to reflect the time value of money and the financial risks related to the future cash flows, to the extent that the financial risks are not included in the estimates of the future cash flows (paragraph 36); and (iii) a risk adjustment for non-financial risk (paragraph 37). (b) the contractual servi....
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....s a result, can set a price or level of benefits that fully reflects the risk of that portfolio; and (ii) the pricing of the premiums up to the date when the risks are reassessed does not take into account the risks that relate to periods after the reassessment date. 35. An entity shall not recognise as a liability or as an asset any amounts relating to expected premiums or expected claims outside the boundary of the insurance contract. Such amounts relate to future insurance contracts. Discount rates (paragraphs B72-B85) 36. An entity shall adjust the estimates of future cash flows to reflect the time value of money and the financial risks related to those cash flows, to the extent that the financial risks are not included in the estimates of cash flows. The discount rates applied to the estimates of the future cash flows described in paragraph 33 shall: (a) reflect the time value of money, the characteristics of the cash flows and the liquidity characteristics of the insurance contracts; (b) be consistent with observable current market prices (if any) for financial instruments with cash flows whose characteristics are consistent with those of the insurance contracts, in ....
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.... 41. An entity shall recognise income and expenses for the following changes in the carrying amount of the liability for remaining coverage: (a) insurance revenue--for the reduction in the liability for remaining coverage because of services provided in the period, measured applying paragraphs B120-B124; (b) insurance service expenses--for losses on groups of onerous contracts, and reversals of such losses (see paragraphs 47-52); and (c) insurance finance income or expenses--for the effect of the time value of money and the effect of financial risk as specified in paragraph 87. 42. An entity shall recognise income and expenses for the following changes in the carrying amount of the liability for incurred claims: (a) insurance service expenses--for the increase in the liability because of claims and expenses incurred in the period, excluding any investment components; (b) insurance service expenses--for any subsequent changes in fulfilment cash flows relating to incurred claims and incurred expenses; and (c) insurance finance income or expenses--for the effect of the time value of money and the effect of financial risk as specified in paragraph 87. Contractual service ....
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....t that: (i) paragraph B115 (on risk mitigation) applies; (ii) the decrease in the amount of the entity's share of the fair value of the underlying items exceeds the carrying amount of the contractual service margin, giving rise to a loss (see paragraph 48); or (iii) the increase in the amount of the entity's share of the fair value of the underlying items reverses the amount in (ii). (c) the changes in fulfilment cash flows relating to future service, as specified in paragraphs B101- B118, except to the extent that: (i) paragraph B115 (on risk mitigation) applies; (ii) such increases in the fulfilment cash flows exceed the carrying amount of the contractual service margin, giving rise to a loss (see paragraph 48); or (iii) such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage applying paragraph 50(b). (d) the effect of any currency exchange differences arising on the contractual service margin; and (e) the amount recognised as insurance revenue because of the transfer of insurance contract services in the period, determined by the allocation of the contractual service margin remaining at the end of ....
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....it or loss as reversals of losses on onerous groups and are consequently excluded from the determination of insurance revenue. 50. After an entity has recognised a loss on an onerous group of insurance contracts, it shall allocate: (a) the subsequent changes in fulfilment cash flows of the liability for remaining coverage specified in paragraph 51 on a systematic basis between: (i) the loss component of the liability for remaining coverage; and (ii) the liability for remaining coverage, excluding the loss component. (b) solely to the loss component until that component is reduced to zero: (i) any subsequent decrease relating to future service in fulfilment cash flows allocated to the group arising from changes in estimates of future cash flows and the risk adjustment for nonfinancial risk; and (ii) any subsequent increases in the amount of the entity's share of the fair value of the underlying items. Applying paragraphs 44(c)(ii), 45(b)(iii) and 45(c)(iii), an entity shall adjust the contractual service margin only for the excess of the decrease over the amount allocated to the loss component. 51. The subsequent changes in the fulfilment cash flows of the liability ....
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....cash flows applying paragraph 28C; and 2. any other asset or liability previously recognised for cash flows related to the group of contracts as specified in paragraph B66A. (b) at the end of each subsequent reporting period, the carrying amount of the liability is the carrying amount at the start of the reporting period: (i) plus the premiums received in the period; (ii) minus insurance acquisition cash flows; unless the entity chooses to recognise the payments as an expense applying paragraph 59(a); (iii) plus any amounts relating to the amortisation of insurance acquisition cash flows recognised as an expense in the reporting period; unless the entity chooses to recognise insurance acquisition cash flows as an expense applying paragraph 59(a); (iv) plus any adjustment to a financing component, applying paragraph 56; (v) minus the amount recognised as insurance revenue for services provided in that period (see paragraph B126); and (vi) minus any investment component paid or transferred to the liability for incurred claims. 56. If insurance contracts in the group have a significant financing component, an entity shall adjust the carrying amount of the liability f....
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....hall be replaced with a reference to contracts on which there is a net gain on initial recognition. For some reinsurance contracts held, applying paragraphs 14-24 will result in a group that comprises a single contract. Recognition 62 Instead of applying paragraph 25, an entity shall recognise a group of reinsurance contracts held from the earlier of the following: (a) the beginning of the coverage period of the group of reinsurance contracts held; and (b) the date the entity recognises an onerous group of underlying insurance contracts applying paragraph 25(c), if the entity entered into the related reinsurance contract held in the group of reinsurance contracts held at or before that date. 62A Notwithstanding paragraph 62(a), an entity shall delay the recognition of a group of reinsurance contracts held that provide proportionate coverage until the date that any underlying insurance contract is initially recognised, if that date is later than the beginning of the coverage period of the group of reinsurance contracts held. Measurement 63. In applying the measurement requirements of paragraphs 32-36 to reinsurance contracts held, to the extent that the underlying contract....
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....vice margin, measured at the discount rates specified in paragraph B72(b); (ba) income recognised in profit or loss in the reporting period applying paragraph 66A; (bb) reversals of a loss-recovery component recognised applying paragraph 66B (see paragraph B119F) to the extent those reversals are not changes in the fulfilment cash flows of the group of reinsurance contracts held; (c) changes in the fulfilment cash flows, measured at the discount rates specified in paragraph B72(c), to the extent that the change relates to future service, unless: (i) the change results from a change in fulfilment cash flows allocated to a group of underlying insurance contracts that does not adjust the contractual service margin for the group of underlying insurance contracts; or (ii) the change results from applying paragraphs 57‒58 (on onerous contracts), if the entity measures a group of underlying insurance contracts applying the premium allocation approach. (d) the effect of any currency exchange differences arising on the contractual service margin; and (e) the amount recognised in profit or loss because of services received in the period, determined by the allocation of th....
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....nt cash flows that would affect the measurement of the asset for remaining coverage during the period before a claim is incurred. Variability in the fulfilment cash flows increases with, for example: (a) the extent of future cash flows relating to any derivatives embedded in the contracts; and (b) the length of the coverage period of the group of reinsurance contracts held. 70A If an entity measures a group of reinsurance contracts held applying the premium allocation approach, the entity shall apply paragraph 66A by adjusting the carrying amount of the asset for remaining coverage instead of adjusting the contractual service margin. Investment contracts with discretionary participation features 71. An investment contract with discretionary participation features does not include a transfer of significant insurance risk. Consequently, the requirements in Ind AS 117 for insurance contracts are modified for investment contracts with discretionary participation features as follows: (a) the date of initial recognition (see paragraphs 25 and 28) is the date the entity becomes party to the contract. (b) the contract boundary (see paragraph 34) is modified so that cash flows are ....
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....ges in estimates of fulfilment cash flows by applying paragraphs 40-52. Derecognition 74. An entity shall derecognise an insurance contract when, and only when: (a) it is extinguished, ie when the obligation specified in the insurance contract expires or is discharged or cancelled; or (b) any of the conditions in paragraph 72 are met. 75. When an insurance contract is extinguished, the entity is no longer at risk and is therefore no longer required to transfer any economic resources to satisfy the insurance contract. For example, when an entity buys reinsurance, it shall derecognise the underlying insurance contract(s) when, and only when, the underlying insurance contract(s) is or are extinguished. 76. An entity derecognises an insurance contract from within a group of contracts by applying the following requirements in Ind AS 117: (a) the fulfilment cash flows allocated to the group are adjusted to eliminate the present value of the future cash flows and risk adjustment for non-financial risk relating to the rights and obligations that have been derecognised from the group, applying paragraphs 40(a)(i) and 40(b); (b) the contractual service margin of the group is adju....
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....s (paragraphs B120-B136) 80. Applying paragraphs 41 and 42, an entity shall disaggregate the amounts recognised in the statement(s) of profit and loss into: (a) an insurance service result (paragraphs 83-86), comprising insurance revenue and insurance service expenses; and (b) insurance finance income or expenses (paragraphs 87-92). 81. An entity is not required to disaggregate the change in the risk adjustment for non-financial risk between the insurance service result and insurance finance income or expenses. If an entity does not make such a disaggregation, it shall include the entire change in the risk adjustment for non-financial risk as part of the insurance service result. 82. An entity shall present income or expenses from reinsurance contracts held separately from the expenses or income from insurance contracts issued. Insurance service result 83. An entity shall present in profit or loss insurance revenue arising from the groups of insurance contracts issued. Insurance revenue shall depict the provision of services arising from the group of insurance contracts at an amount that reflects the consideration to which the entity expects to be entitled in exchange for ....
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....ed in insurance service expenses. 87A An entity shall apply: (a) paragraph B117A to insurance finance income or expenses arising from the application of paragraph B115 (risk mitigation); and (b) paragraphs 88 and 89 to all other insurance finance income or expenses. 88. In applying paragraph 87A(b), unless paragraph 89 applies, an entity shall make an accounting policy choice between: (a) including insurance finance income or expenses for the period in profit or loss; or (b) disaggregating insurance finance income or expenses for the period to include in profit or loss an amount determined by a systematic allocation of the expected total insurance finance income or expenses over the duration of the group of contracts, applying paragraphs B130- B133. 89. In applying paragraph 87A(b), for insurance contracts with direct participation features, for which the entity holds the underlying items, an entity shall make an accounting policy choice between: (a) including insurance finance income or expenses for the period in profit or loss; or (b) disaggregating insurance finance income or expenses for the period to include in profit or loss an amount that eliminates accounting....
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....ificant judgements, and changes in those judgements, made when applying Ind AS 117 (see paragraphs 117-120); and (c) the nature and extent of the risks from contracts within the scope of Ind AS 117 (see paragraphs 121-132). 94. An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. If the disclosures provided, applying paragraphs 97- 132, are not enough to meet the objective in paragraph 93, an entity shall disclose additional information necessary to meet that objective. 95. An entity shall aggregate or disaggregate information so that useful information is not obscured either by the inclusion of a large amount of insignificant detail or by the aggregation of items that have different characteristics. 96. Paragraphs 29-31 of Ind AS 1 set out requirements relating to materiality and aggregation of information. Examples of aggregation bases that might be appropriate for information disclosed about insurance contracts are: (a) type of contract (for example, major product lines); (b) geographical area (for example, country or region); or (c) reportable segment, as defined....
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....separate reconciliations for: (i) the estimates of the present value of the future cash flows; and (ii) the risk adjustment for non-financial risk. 101. For insurance contracts other than those to which the premium allocation approach described in paragraphs 53-59 or 69-70A has been applied, an entity shall also disclose reconciliations from the opening to the closing balances separately for each of: (a) the estimates of the present value of the future cash flows; (b) the risk adjustment for non-financial risk; and (c) the contractual service margin. 102. The objective of the reconciliations in paragraphs 100-101 is to provide different types of information about the insurance service result. 103. An entity shall separately disclose in the reconciliations required in paragraph 100 each of the following amounts related to services, if applicable: (a) insurance revenue. (b) insurance service expenses, showing separately: (i) incurred claims (excluding investment components) and other incurred insurance service expenses; (ii) amortisation of insurance acquisition cash flows; (iii) changes that relate to past service, ie changes in fulfilment cash flows relating ....
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.... 105A An entity shall disclose a reconciliation from the opening to the closing balance of assets for insurance acquisition cash flows recognised applying paragraph 28B. An entity shall aggregate information for the reconciliation at a level that is consistent with that for the reconciliation of insurance contracts, applying paragraph 98. 105B An entity shall separately disclose in the reconciliation required by paragraph 105A any impairment losses and reversals of impairment losses recognised applying paragraphs 28E-28F. 106. For insurance contracts issued other than those to which the premium allocation approach described in paragraphs 53-59 has been applied, an entity shall disclose an analysis of the insurance revenue recognised in the period comprising: (a) the amounts relating to the changes in the liability for remaining coverage as specified in paragraph B124, separately disclosing: (i) the insurance service expenses incurred during the period as specified in paragraph B124(a); (ii) the change in the risk adjustment for non-financial risk, as specified in paragraph B124(b); (iii) the amount of the contractual service margin recognised in profit or loss because of....
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....omprehensive income. 111. For contracts with direct participation features, the entity shall describe the composition of the underlying items and disclose their fair value. 112. For contracts with direct participation features, if an entity chooses not to adjust the contractual service margin for some changes in the fulfilment cash flows, applying paragraph B115, it shall disclose the effect of that choice on the adjustment to the contractual service margin in the current period. 113. For contracts with direct participation features, if an entity changes the basis of disaggregation of insurance finance income or expenses between profit or loss and other comprehensive income, applying paragraph B135, it shall disclose, in the period when the change in approach occurred: (a) the reason why the entity was required to change the basis of disaggregation; (b) the amount of any adjustment for each financial statement line item affected; and (c) the carrying amount of the group of insurance contracts to which the change applied at the date of the change. Transition amounts 114. An entity shall provide disclosures that enable users of financial statements to identify the effect o....
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....ssumptions and estimation techniques used, including: (a) the methods used to measure insurance contracts within the scope of Ind AS 117 and the processes for estimating the inputs to those methods. Unless impracticable, an entity shall also provide quantitative information about those inputs. (b) any changes in the methods and processes for estimating inputs used to measure contracts, the reason for each change, and the type of contracts affected. (c) to the extent not covered in (a), the approach used: (i) to distinguish changes in estimates of future cash flows arising from the exercise of discretion from other changes in estimates of future cash flows for contracts without direct participation features (see paragraph B98); (ii) to determine the risk adjustment for non-financial risk, including whether changes in the risk adjustment for non-financial risk are disaggregated into an insurance service component and an insurance finance component or are presented in full in the insurance service result; (iii) to determine discount rates; (iv) to determine investment components; and (v) to determine the relative weighting of the benefits provided by insurance coverag....
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....b) the entity's objectives, policies and processes for managing the risks and the methods used to measure the risks; and (c) any changes in (a) or (b) from the previous period. 125. For each type of risk arising from contracts within the scope of Ind AS 117, an entity shall disclose: (a) summary quantitative information about its exposure to that risk at the end of the reporting period. This disclosure shall be based on the information provided internally to the entity's key management personnel. (b) the disclosures required by paragraphs 127-132, to the extent not provided applying (a) of this paragraph. 126. An entity shall disclose information about the effect of the regulatory frameworks in which it operates; for example, minimum capital requirements or required interest-rate guarantees. If an entity applies paragraph 20 in determining the groups of insurance contracts to which it applies the recognition and measurement requirements of Ind AS 117, it shall disclose that fact. All types of risk--concentrations of risk 127. An entity shall disclose information about concentrations of risk arising from contracts within the scope of Ind AS 117, including a description of ....
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....sclose actual claims compared with previous estimates of the undiscounted amount of the claims (ie claims development). The disclosure about claims development shall start with the period when the earliest material claim(s) arose and for which there is still uncertainty about the amount and timing of the claims payments at the end of the reporting period; but the disclosure is not required to start more than 10 years before the end of the reporting period. The entity is not required to disclose information about the development of claims for which uncertainty about the amount and timing of the claims payments is typically resolved within one year. An entity shall reconcile the disclosure about claims development with the aggregate carrying amount of the groups of insurance contracts, which the entity discloses applying paragraph 100(c). Credit risk--other information 131. For credit risk that arises from contracts within the scope of Ind AS 117, an entity shall disclose: (a) the amount that best represents its maximum exposure to credit risk at the end of the reporting period, separately for insurance contracts issued and reinsurance contracts held; and (b) information about ....
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.... future change in one or more of a specified interest rate, financial instrument price, commodity price, currency exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. fulfilment cash flows An explicit, unbiased and probability-weighted estimate (ie expected value) of the present value of the future cash outflows minus the present value of the future cash inflows that will arise as the entity fulfils insurance contracts, including a risk adjustment for non-financial risk. group of insurance contracts A set of insurance contracts resulting from the division of a portfolio of insurance contracts into, at a minimum, contracts issued within a period of no longer than one year and that, at initial recognition: (a) are onerous, if any; (b) have no significant possibility of becoming onerous subsequently, if any; or (c) do not fall into either (a) or (b), if any. insurance acquisition cash flows Cash flows arising from the costs of selling, underwriting and starting a group of insurance contracts (issued or expected to be issued) that ....
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....ted to be a significant portion of the total contractual benefits; (b) the timing or amount of which are contractually at the discretion of the issuer; and (c) that are contractually based on: (i) the returns on a specified pool of contracts or a specified type of contract; (ii) realised and/or unrealised investment returns on a specified pool of assets held by the issuer; or (iii) the profit or loss of the entity or fund that issues the contract. liability for incurred claims An entity's obligation to: (a) investigate and pay valid claims for insured events that have already occurred, including events that have occurred but for which claims have not been reported, and other incurred insurance expenses; and (b) pay amounts that are not included in (a) and that relate to: (i) insurance contract services that have already been provided; or (ii) any investment components or other amounts that are not related to the provision of insurance contract services and that are not in the liability for remaining coverage. liability for remaining coverage An entity's obligation to: (a) investigate and pay valid claims under existing insurance contracts for insured events th....
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.... risk and other risks (see paragraphs B7- B16); (d) significant insurance risk (see paragraphs B17-B23); (e) changes in the level of insurance risk (see paragraphs B24-B25); and (f) examples of insurance contracts (see paragraphs B26-B30). Uncertain future event B3 Uncertainty (or risk) is the essence of an insurance contract. Accordingly, at least one of the following is uncertain at the inception of an insurance contract: (a) the probability of an insured event occurring; (b) when the insured event will occur; or (c) how much the entity will need to pay if the insured event occurs. B4 In some insurance contracts, the insured event is the discovery of a loss during the term of the contract, even if that loss arises from an event that occurred before the inception of the contract. In other insurance contracts, the insured event is an event that occurs during the term of the contract, even if the resulting loss is discovered after the end of the contract term. B5 Some insurance contracts cover events that have already occurred but the financial effect of which is still uncertain. An example is an insurance contract that provides insurance coverage against an adverse ....
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....l condition, that risk is insurance risk, not financial risk. B9 Some contracts expose the issuer to financial risk in addition to significant insurance risk. For example, many life insurance contracts guarantee a minimum rate of return to policyholders, creating financial risk, and at the same time promise death benefits that may significantly exceed the policyholder's account balance, creating insurance risk in the form of mortality risk. Such contracts are insurance contracts. B10 Under some contracts, an insured event triggers the payment of an amount linked to a price index. Such contracts are insurance contracts, provided that the payment contingent on the insured event could be significant. For example, a life-contingent annuity linked to a cost-of-living index transfers insurance risk because the payment is triggered by an uncertain future event--the survival of the person who receives the annuity. The link to the price index is a derivative, but it also transfers insurance risk because the number of payments to which the index applies depends on the survival of the annuitant. If the resulting transfer of insurance risk is significant, the derivative meets the definition ....
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....re event that adversely affects the policyholder. Similarly, expense risk (ie the risk of unexpected increases in the administrative costs associated with the servicing of a contract, rather than in the costs associated with insured events) is not insurance risk because an unexpected increase in such expenses does not adversely affect the policyholder. B15 Consequently, a contract that exposes the entity to lapse risk, persistency risk or expense risk is not an insurance contract unless it also exposes the entity to significant insurance risk. However, if the entity mitigates its risk by using a second contract to transfer part of the non-insurance risk to another party, the second contract exposes the other party to insurance risk. B16 An entity can accept significant insurance risk from the policyholder only if the entity is separate from the policyholder. In the case of a mutual entity, the mutual entity accepts risk from each policyholder and pools that risk. Although policyholders bear that pooled risk collectively because they hold the residual interest in the entity, the mutual entity is a separate entity that has accepted the risk. Significant insurance risk B17 A contr....
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....te significant insurance risk. An entity shall use the discount rates required in paragraph 36 to determine the present value of the additional amounts. B21 The additional amounts described in paragraph B18 refer to the present value of amounts that exceed those that would be payable if no insured event had occurred (excluding scenarios that lack commercial substance). Those additional amounts include claims handling and assessment costs, but exclude: (a) the loss of the ability to charge the policyholder for future service. For example, in an investment-linked life insurance contract, the death of the policyholder means that the entity can no longer perform investment management services and collect a fee for doing so. However, this economic loss for the entity does not result from insurance risk, just as a mutual fund manager does not take on insurance risk in relation to the possible death of a client. Consequently, the potential loss of future investment management fees is not relevant when assessing how much insurance risk is transferred by a contract. (b) a waiver, on death, of charges that would be made on cancellation or surrender. Because the contract brought those ch....
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....e the policyholder exercises that option. Such a contract transfers insurance risk to the issuer only after the option is exercised, because the entity remains free to price the annuity on a basis that reflects the insurance risk that will be transferred to the entity at that time. Consequently, the cash flows that would occur on the exercise of the option fall outside the boundary of the contract, and before exercise there are no insurance cash flows within the boundary of the contract. However, if the contract specifies the annuity rates (or a basis other than market rates for setting the annuity rates), the contract transfers insurance risk to the issuer because the issuer is exposed to the risk that the annuity rates will be unfavourable to the issuer when the policyholder exercises the option. In that case, the cash flows that would occur when the option is exercised are within the boundary of the contract. B25 A contract that meets the definition of an insurance contract remains an insurance contract until all rights and obligations are extinguished (ie discharged, cancelled or expired), unless the contract is derecognised applying paragraphs 74-77, because of a contract mod....
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....oreign exchange rate). (k) insurance swaps and other contracts that require a payment depending on changes in climatic, geological or other physical variables that are specific to a party to the contract. B27 The following are examples of items that are not insurance contracts: (a) investment contracts that have the legal form of an insurance contract but do not transfer significant insurance risk to the issuer. For example, life insurance contracts in which the entity bears no significant mortality or morbidity risk are not insurance contracts; such contracts are financial instruments or service contracts--see paragraph B28. Investment contracts with discretionary participation features do not meet the definition of an insurance contract; however, they are within the scope of Ind AS 117 provided they are issued by an entity that also issues insurance contracts, applying paragraph 3(c). (b) contracts that have the legal form of insurance, but return all significant insurance risk to the policyholder through non-cancellable and enforceable mechanisms that adjust future payments by the policyholder to the issuer as a direct result of insured losses. For example, some financial....
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....n entity shall apply other applicable Standards, such as Ind AS 109 and Ind AS 115, to the contracts described in paragraph B27. B29 The credit-related guarantees and credit insurance contracts discussed in paragraph B27(f) can have various legal forms, such as that of a guarantee, some types of letters of credit, a credit default contract or an insurance contract. Those contracts are insurance contracts if they require the issuer to make specified payments to reimburse the holder for a loss that the holder incurs because a specified debtor fails to make payment when due to the policyholder applying the original or modified terms of a debt instrument. However, such insurance contracts are excluded from the scope of Ind AS 117 unless the issuer has previously asserted explicitly that it regards the contracts as insurance contracts and has used accounting applicable to insurance contracts (see paragraph 7(e)). B30 Credit-related guarantees and credit insurance contracts that require payment, even if the policyholder has not incurred a loss on the failure of the debtor to make payments when due, are outside the scope of Ind AS 117 because they do not transfer significant insurance r....
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....contract. The performance of those tasks does not transfer a service to the policyholder as the tasks are performed. B34 A good or service other than an insurance contract service promised to a policyholder is distinct if the policyholder can benefit from the good or service either on its own or together with other resources readily available to the policyholder. Readily available resources are goods or services that are sold separately (by the entity or by another entity), or resources that the policyholder has already got (from the entity or from other transactions or events). B35 A good or service other than an insurance contract service that is promised to the policyholder is not distinct if: (a) the cash flows and risks associated with the good or service are highly interrelated with the cash flows and risks associated with the insurance components in the contract; and (b) the entity provides a significant service in integrating the good or service with the insurance components. Insurance acquisition cash flows (paragraphs 28A‒28F) B35A To apply paragraph 28A, an entity shall use a systematic and rational method to allocate: (a) insurance acquisition cash flows....
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....or effort (see paragraphs B37-B41); (b) market variables and non-market variables (see paragraphs B42-B53); (c) using current estimates (see paragraphs B54-B60); and (d) cash flows within the contract boundary (see paragraphs B61-B71). Unbiased use of all reasonable and supportable information available without undue cost or effort (paragraph 33(a)) B37 The objective of estimating future cash flows is to determine the expected value, or probability-weighted mean, of the full range of possible outcomes, considering all reasonable and supportable information available at the reporting date without undue cost or effort. Reasonable and supportable information available at the reporting date without undue cost or effort includes information about past events and current conditions, and forecasts of future conditions (see paragraph B41). Information available from an entity's own information systems is considered to be available without undue cost or effort. B38 The starting point for an estimate of the cash flows is a range of scenarios that reflects the full range of possible outcomes. Each scenario specifies the amount and timing of the cash flows for a particular outcome, an....
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....ed population differ (or will differ, for example, because of adverse selection) from those of the population that has been used as a basis for the historical data; (ii) there are indications that historical trends will not continue, that new trends will emerge or that economic, demographic and other changes may affect the cash flows that arise from the existing insurance contracts; or (iii) there have been changes in items such as underwriting procedures and claims management procedures that may affect the relevance of historical data to the insurance contracts. (d) current price information, if available, for reinsurance contracts and other financial instruments (if any) covering similar risks, such as catastrophe bonds and weather derivatives, and recent market prices for transfers of insurance contracts. This information shall be adjusted to reflect the differences between the cash flows that arise from those reinsurance contracts or other financial instruments, and the cash flows that would arise as the entity fulfils the underlying contracts with the policyholder. Market variables and non-market variables B42 Ind AS 117 identifies two types of variables: (a) market ....
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....filment cash flows instead of explicitly estimating the cash flows and discount rate. B47 Ind AS 117 does not require an entity to use a replicating portfolio technique. However, if a replicating asset or portfolio does exist for some of the cash flows that arise from insurance contracts and an entity chooses to use a different technique, the entity shall satisfy itself that a replicating portfolio technique would be unlikely to lead to a materially different measurement of those cash flows. B48 Techniques other than a replicating portfolio technique, such as stochastic modelling techniques, may be more robust or easier to implement if there are significant interdependencies between cash flows that vary based on returns on assets and other cash flows. Judgement is required to determine the technique that best meets the objective of consistency with observable market variables in specific circumstances. In particular, the technique used must result in the measurement of any options and guarantees included in the insurance contracts being consistent with observable market prices (if any) for such options and guarantees. Non-market variables B49 Estimates of non-market variables s....
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....surance are correlated with economic cycles and therefore with interest rates and expense amounts. The entity shall ensure that the probabilities for the scenarios and the risk adjustments for the non-financial risk that relates to the market variables are consistent with the observed market prices that depend on those market variables. Using current estimates (paragraph 33(c)) B54 In estimating each cash flow scenario and its probability, an entity shall use all reasonable and supportable information available without undue cost or effort. An entity shall review the estimates that it made at the end of the previous reporting period and update them. In doing so, an entity shall consider whether: (a) the updated estimates faithfully represent the conditions at the end of the reporting period. (b) the changes in estimates faithfully represent the changes in conditions during the period. For example, suppose that estimates were at one end of a reasonable range at the beginning of the period. If the conditions have not changed, shifting the estimates to the other end of the range at the end of the period would not faithfully represent what has happened during the period. If an e....
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....ypically be that the expected present value of death benefits changes, but not by as much as 20 per cent. In the example in paragraph B56, if mortality rates continue to be significantly higher than the previous estimates for reasons that are expected to continue, the estimated probability assigned to the high-mortality scenarios will increase. B58 Estimates of non-market variables shall include information about the current level of insured events and information about trends. For example, mortality rates have consistently declined over long periods in many countries. The determination of the fulfilment cash flows reflects the probabilities that would be assigned to each possible trend scenario, taking account of all reasonable and supportable information available without undue cost or effort. B59 Similarly, if cash flows allocated to a group of insurance contracts are sensitive to inflation, the determination of the fulfilment cash flows shall reflect current estimates of possible future inflation rates. Because inflation rates are likely to be correlated with interest rates, the measurement of fulfilment cash flows shall reflect the probabilities for each inflation scenario i....
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....nd related cash flows that arise from the renewed contract are within the boundary of the original contract. B64 Paragraph 34 refers to an entity's practical ability to set a price at a future date (a renewal date) that fully reflects the risks in the contract from that date. An entity has that practical ability in the absence of constraints that prevent the entity from setting the same price it would for a new contract with the same characteristics as the existing contract issued on that date, or if it can amend the benefits to be consistent with the price it will charge. Similarly, an entity has that practical ability to set a price when it can reprice an existing contract so that the price reflects overall changes in the risks in a portfolio of insurance contracts, even if the price set for each individual policyholder does not reflect the change in risk for that specific policyholder. When assessing whether the entity has the practical ability to set a price that fully reflects the risks in the contract or portfolio, it shall consider all the risks that it would consider when underwriting equivalent contracts on the renewal date for the remaining service. In determining the es....
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....ibuted to them on a reasonable and consistent basis. (j) payments by the insurer in a fiduciary capacity to meet tax obligations incurred by the policyholder, and related receipts. (k) potential cash inflows from recoveries (such as salvage and subrogation) on future claims covered by existing insurance contracts and, to the extent that they do not qualify for recognition as separate assets, potential cash inflows from recoveries on past claims. (ka) costs the entity will incur: (i) performing investment activity, to the extent the entity performs that activity to enhance benefits from insurance coverage for policyholders. Investment activities enhance benefits from insurance coverage if the entity performs those activities expecting to generate an investment return from which policyholders will benefit if an insured event occurs. (ii) providing investment-return service to policyholders of insurance contracts without direct participation features (see paragraph B119B). (iii) providing investment-related service to policyholders of insurance contracts with direct participation features. (l) an allocation of fixed and variable overheads (such as the costs of accounting....
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....ave been included in the fulfilment cash flows at the date of initial recognition of the group had they been paid or received after that date. To apply paragraph 38(c)(ii) an entity shall derecognise such an asset or liability to the extent that the asset or liability would not be recognised separately from the group of insurance contracts if the cash flow or the application of the Ind AS occurred at the date of initial recognition of the group of insurance contracts. Contracts with cash flows that affect or are affected by cash flows to policyholders of other contracts B67 Some insurance contracts affect the cash flows to policyholders of other contracts by requiring: (a) the policyholder to share with policyholders of other contracts the returns on the same specified pool of underlying items; and (b) either: (i) the policyholder to bear a reduction in their share of the returns on the underlying items because of payments to policyholders of other contracts that share in that pool, including payments arising under guarantees made to policyholders of those other contracts; or (ii) policyholders of other contracts to bear a reduction in their share of returns on the underl....
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....unt rates applying paragraph 36; (b) to determine the interest to accrete on the contractual service margin applying paragraph 44(b) for insurance contracts without direct participation features--discount rates determined at the date of initial recognition of a group of contracts, applying paragraph 36 to nominal cash flows that do not vary based on the returns on any underlying items; (c) to measure the changes to the contractual service margin applying paragraphs B96(a)-B96(b) and B96(d) for insurance contracts without direct participation features--discount rates applying paragraph 36 determined on initial recognition; (d) for groups of contracts applying the premium allocation approach that have a significant financing component, to adjust the carrying amount of the liability for remaining coverage applying paragraph 56--discount rates applying paragraph 36 determined on initial recognition; (e) if an entity chooses to disaggregate insurance finance income or expenses between profit or loss and other comprehensive income (see paragraph 88), to determine the amount of the insurance finance income or expenses included in profit or loss: (i) for groups of insurance contr....
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....djustment made. The variability is a relevant factor regardless of whether it arises because of contractual terms or because the entity exercises discretion, and regardless of whether the entity holds the underlying items. B76 Cash flows that vary with returns on underlying items with variable returns, but that are subject to a guarantee of a minimum return, do not vary solely based on the returns on the underlying items, even when the guaranteed amount is lower than the expected return on the underlying items. Hence, an entity shall adjust the rate that reflects the variability of the returns on the underlying items for the effect of the guarantee, even when the guaranteed amount is lower than the expected return on the underlying items. B77 Ind AS 117 does not require an entity to divide estimated cash flows into those that vary based on the returns on underlying items and those that do not. If an entity does not divide the estimated cash flows in this way, the entity shall apply discount rates appropriate for the estimated cash flows as a whole; for example, using stochastic modelling techniques or risk-neutral measurement techniques. B78 Discount rates shall include only rel....
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....on the returns on underlying items, an entity may determine discount rates by adjusting a liquid risk-free yield curve to reflect the differences between the liquidity characteristics of the financial instruments that underlie the rates observed in the market and the liquidity characteristics of the insurance contracts (a bottom-up approach). B81 Alternatively, an entity may determine the appropriate discount rates for insurance contracts based on a yield curve that reflects the current market rates of return implicit in a fair value measurement of a reference portfolio of assets (a top-down approach). An entity shall adjust that yield curve to eliminate any factors that are not relevant to the insurance contracts, but is not required to adjust the yield curve for differences in liquidity characteristics of the insurance contracts and the reference portfolio. B82 In estimating the yield curve described in paragraph B81: (a) if there are observable market prices in active markets for assets in the reference portfolio, an entity shall use those prices (consistent with paragraph 69 of Ind AS 113). (b) if a market is not active, an entity shall adjust observable market prices for....
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....fy restrictions on the reference portfolio of assets used in applying paragraph B81. However, fewer adjustments would be required to eliminate factors that are not relevant to the insurance contracts when the reference portfolio of assets has similar characteristics. For example, if the cash flows from the insurance contracts do not vary based on the returns on underlying items, fewer adjustments would be required if an entity used debt instruments as a starting point rather than equity instruments. For debt instruments, the objective would be to eliminate from the total bond yield the effect of credit risk and other factors that are not relevant to the insurance contracts. One way to estimate the effect of credit risk is to use the market price of a credit derivative as a reference point. Risk adjustment for non-financial risk (paragraph 37) B86 The risk adjustment for non-financial risk relates to risk arising from insurance contracts other than financial risk. Financial risk is included in the estimates of the future cash flows or the discount rate used to adjust the cash flows. The risks covered by the risk adjustment for non-financial risk are insurance risk and other non-fi....
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....ing the risk adjustment for non-financial risk implicitly when determining the estimates of future cash flows or the discount rates. The discount rates that are disclosed to comply with paragraph 120 shall not include any implicit adjustments for non-financial risk. B91 Ind AS 117 does not specify the estimation technique(s) used to determine the risk adjustment for nonfinancial risk. However, to reflect the compensation the entity would require for bearing the non-financial risk, the risk adjustment for non-financial risk shall have the following characteristics: (a) risks with low frequency and high severity will result in higher risk adjustments for non-financial risk than risks with high frequency and low severity; (b) for similar risks, contracts with a longer duration will result in higher risk adjustments for nonfinancial risk than contracts with a shorter duration; (c) risks with a wider probability distribution will result in higher risk adjustments for non-financial risk than risks with a narrower distribution; (d) the less that is known about the current estimate and its trend, the higher will be the risk adjustment for non-financial risk; and (e) to the exten....
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....t cash flows over the consideration paid or received as part of goodwill or gain on a bargain purchase as capital reserve either directly or through Other Comprehensive Income as per the requirements of Ind AS 103 for contracts acquired in a business combination within the scope of Ind AS 103, or as a loss in profit or loss for contracts acquired in a transfer. The entity shall establish a loss component of the liability for remaining coverage for that excess, and apply paragraphs 49-52 to allocate subsequent changes in fulfilment cash flows to that loss component. B95B For a group of reinsurance contracts held to which paragraphs 66A-66B apply, an entity shall determine the loss-recovery component of the asset for remaining coverage at the date of the transaction by multiplying: (a) the loss component of the liability for remaining coverage of the underlying insurance contracts at the date of the transaction; and (b) the percentage of claims on the underlying insurance contracts the entity expects at the date of the transaction to recover from the group of reinsurance contracts held. B95C The entity shall recognise the amount of the loss-recovery component determined applyin....
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....service, and related cash flows such as insurance acquisition cash flows and premium-based taxes, measured at the discount rates specified in paragraph B72(c). (b) changes in estimates of the present value of the future cash flows in the liability for remaining coverage, except those described in paragraph B97(a), measured at the discount rates specified in paragraph B72(c). (c) differences between any investment component expected to become payable in the period and the actual investment component that becomes payable in the period. Those differences are determined by comparing (i) the actual investment component that becomes payable in the period with (ii) the payment in the period that was expected at the start of the period plus any insurance finance income or expenses related to that expected payment before it becomes payable. (ca) differences between any loan to a policyholder expected to become repayable in the period and the actual loan to a policyholder that becomes repayable in the period. Those differences are determined by comparing (i) the actual loan to a policyholder that becomes repayable in the period with (ii) the repayment in the period that was expected at....
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....it regards as its commitment under the contract and what it regards as discretionary, it shall regard its commitment to be the return implicit in the estimate of the fulfilment cash flows at inception of the contract, updated to reflect current assumptions that relate to financial risk. Changes in the carrying amount of the contractual service margin for insurance contracts with direct participation features (paragraph 45) B101 Insurance contracts with direct participation features are insurance contracts that are substantially investment-related service contracts under which an entity promises an investment return based on underlying items. Hence, they are defined as insurance contracts for which: (a) the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items (see paragraphs B105- B106); (b) the entity expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items (see paragraph B107); and (c) the entity expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value of the underlyi....
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....lates. In this case, the obligation to the policyholder reflects the crediting rate or dividend amounts the entity has set, and does not reflect identified underlying items. B107 Paragraph B101(b) requires that the entity expects a substantial share of the fair value returns on the underlying items will be paid to the policyholder and paragraph B101(c) requires that the entity expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the change in fair value of the underlying items. An entity shall: (a) interpret the term 'substantial' in both paragraphs in the context of the objective of insurance contracts with direct participation features being contracts under which the entity provides investment-related services and is compensated for the services by a fee that is determined by reference to the underlying items; and (b) assess the variability in the amounts in paragraphs B101(b) and B101(c): (i) over the duration of the insurance contract; and (ii) on a present value probability-weighted average basis, not a best or worst outcome basis (see paragraphs B37-B38). B108 For example, if the entity expects to pay a substantia....
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....example, the effect of financial guarantees. These relate to future service and, applying paragraph 45(c), adjust the contractual service margin, except to the extent that paragraph B115 applies. B114 An entity is not required to identify the adjustments to the contractual service margin required by paragraphs B112 and B113 separately. Instead, a combined amount may be determined for some or all of the adjustments. Risk mitigation B115 To the extent that an entity meets the conditions in paragraph B116, it may choose not to recognise a change in the contractual service margin to reflect some or all of the changes in the effect of the time value of money and financial risk on: (a) the amount of the entity's share of the underlying items (see paragraph B112) if the entity mitigates the effect of financial risk on that amount using derivatives or reinsurance contracts held; and (b) the fulfilment cash flows set out in paragraph B113(b) if the entity mitigates the effect of financial risk on those fulfilment cash flows using derivatives, non-derivative financial instruments measured at fair value through profit or loss, or reinsurance contracts held. B116 To apply paragraph B1....
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....its expected coverage period. (b) allocating the contractual service margin at the end of the period (before recognising any amounts in profit or loss to reflect the insurance contract services provided in the period) equally to each coverage unit provided in the current period and expected to be provided in the future. (c) recognising in profit or loss the amount allocated to coverage units provided in the period. B119A To apply paragraph B119, the period of investment-return service or investment-related service ends at or before the date that all amounts due to current policyholders relating to those services have been paid, without considering payments to future policyholders included in the fulfilment cash flows applying paragraph B68. B119B Insurance contracts without direct participation features may provide an investment-return service if, and only if: (a) an investment component exists, or the policyholder has a right to withdraw an amount; (b) the entity expects the investment component or amount the policyholder has a right to withdraw to include an investment return (an investment return could be below zero, for example, in a negative interest rate environme....
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....s to be entitled in exchange for those services. The total consideration for a group of contracts covers the following amounts: (a) amounts related to the provision of services, comprising: (i) insurance service expenses, excluding any amounts relating to the risk adjustment for nonfinancial risk included in (ii) and any amounts allocated to the loss component of the liability for remaining coverage; (ia) amounts related to income tax that are specifically chargeable to the policyholder; (ii) the risk adjustment for non-financial risk, excluding any amounts allocated to the loss component of the liability for remaining coverage; and (iii) the contractual service margin. (b) amounts related to insurance acquisition cash flows. B122 Insurance revenue for a period relating to the amounts described in paragraph B121(a) is determined as set out in paragraphs B123-B124. Insurance revenue for a period relating to the amounts described in paragraph B121(b) is determined as set out in paragraph B125. B123 Applying Ind AS 115, when an entity provides services, it derecognises the performance obligation for those services and recognises revenue. Consistently, applying Ind AS 117, ....
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....risk adjustment for non-financial risk (see (b)). (b) the change in the risk adjustment for non-financial risk, excluding: (i) changes included in insurance finance income or expenses applying paragraph 87; (ii) changes that adjust the contractual service margin because they relate to future service applying paragraphs 44(c) and 45(c); and (iii) amounts allocated to the loss component of the liability for remaining coverage applying paragraph 51(b). (c) the amount of the contractual service margin recognised in profit or loss in the period, applying paragraphs 44(e) and 45(e). (d) other amounts, if any, for example, experience adjustments for premium receipts other than those that relate to future service (see paragraph B96(a)). B125 An entity shall determine insurance revenue related to insurance acquisition cash flows by allocating the portion of the premiums that relate to recovering those cash flows to each reporting period in a systematic way on the basis of the passage of time. An entity shall recognise the same amount as insurance service expenses. B126 When an entity applies the premium allocation approach in paragraphs 55-58, insurance revenue for the period ....
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....ontext, a systematic allocation is an allocation of the total expected finance income or expenses of a group of insurance contracts over the duration of the group that: (a) is based on characteristics of the contracts, without reference to factors that do not affect the cash flows expected to arise under the contracts. For example, the allocation of the finance income or expenses shall not be based on expected recognised returns on assets if those expected recognised returns do not affect the cash flows of the contracts in the group. (b) results in the amounts recognised in other comprehensive income over the duration of the group of contracts totalling zero. The cumulative amount recognised in other comprehensive income at any date is the difference between the carrying amount of the group of contracts and the amount that the group would be measured at when applying the systematic allocation. B131 For groups of insurance contracts for which changes in assumptions that relate to financial risk do not have a substantial effect on the amounts paid to the policyholder, the systematic allocation is determined using the discount rates specified in paragraph B72(e)(i). B132 For gro....
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.... included in profit or loss for the underlying items, resulting in the net of the separately presented items being nil. B135 An entity may qualify for the accounting policy choice in paragraph 89 in some periods but not in others because of a change in whether it holds the underlying items. If such a change occurs, the accounting policy choice available to the entity changes from that set out in paragraph 88 to that set out in paragraph 89, or vice versa. Hence, an entity might change its accounting policy between that set out in paragraph 88(b) and that set out in paragraph 89(b). In making such a change an entity shall: (a) include the accumulated amount previously included in other comprehensive income by the date of the change as a reclassification adjustment in profit or loss in the period of change and in future periods, as follows: (i) if the entity had previously applied paragraph 88(b)--the entity shall include in profit or loss the accumulated amount included in other comprehensive income before the change as if the entity were continuing the approach in paragraph 88(b) based on the assumptions that applied immediately before the change; and (ii) if the entity had ....
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....pectively, except that: (a) an entity is not required to present the quantitative information required by paragraph 28(f) of Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors; and (b) an entity shall not apply the option in paragraph B115 for periods before the transition date. An entity may apply the option in paragraph B115 prospectively on or after the transition date if, and only if, the entity designates risk mitigation relationships at or before the date it applies the option. C4 To apply Ind AS 117 retrospectively, an entity shall at the transition date: (a) identify, recognise and measure each group of insurance contracts as if Ind AS 117 had always applied; (aa) identify, recognise and measure any assets for insurance acquisition cash flows as if Ind AS 117 had always applied (except that an entity is not required to apply the recoverability assessment in paragraph 28E before the transition date); (b) derecognise any existing balances that would not exist had Ind AS 117 always applied; and (c) recognise any resulting net difference in equity. C5 If, and only if, it is impracticable for an entity to apply paragraph C3 for a group of ins....
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....without direct participation features; (c) amounts related to the contractual service margin or loss component for insurance contracts with direct participation features; and (d) insurance finance income or expenses. C8 To achieve the objective of the modified retrospective approach, an entity is permitted to use each modification in paragraphs C9-C19A only to the extent that an entity does not have reasonable and supportable information to apply a retrospective approach. Assessments at inception or initial recognition C9 To the extent permitted by paragraph C8, an entity shall determine the following matters using information available at the transition date: (a) how to identify groups of insurance contracts, applying paragraphs 14-24; (b) whether an insurance contract meets the definition of an insurance contract with direct participation features, applying paragraphs B101-B109; (c) how to identify discretionary cash flows for insurance contracts without direct participation features, applying paragraphs B98-B100; and (d) whether an investment contract meets the definition of an investment contract with discretionary participation features within the scope of Ind ....
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....t spread shall be an average over at least three years immediately before the transition date. C14 To the extent permitted by paragraph C8, an entity shall determine the risk adjustment for non-financial risk at the date of initial recognition of a group of insurance contracts (or subsequently) by adjusting the risk adjustment for non-financial risk at the transition date by the expected release of risk before the transition date. The expected release of risk shall be determined by reference to the release of risk for similar insurance contracts that the entity issues at the transition date. C14A Applying paragraph B137, an entity may choose not to change the treatment of accounting estimates made in previous interim financial statements. To the extent permitted by paragraph C8, such an entity shall determine the contractual service margin or loss component at the transition date as if the entity had not prepared interim financial statements before the transition date. C14B To the extent permitted by paragraph C8, an entity shall use the same systematic and rational method the entity expects to use after the transition date when applying paragraph 28A to allocate any insurance a....
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....ll determine any amounts allocated to the loss component before the transition date applying paragraphs C12-C14D and using a systematic basis of allocation. C16A For a group of reinsurance contracts held that provides coverage for an onerous group of insurance contracts and was entered into before or at the same time that the insurance contracts were issued, an entity shall establish a loss-recovery component of the asset for remaining coverage at the transition date (see paragraphs 66A-66B). To the extent permitted by paragraph C8, an entity shall determine the loss-recovery component by multiplying: (a) the loss component of the liability for remaining coverage for the underlying insurance contracts at the transition date (see paragraphs C16 and C20); and (b) the percentage of claims for the underlying insurance contracts the entity expects to recover from the group of reinsurance contracts held. C16B Applying paragraphs 14‒22, at the transition date an entity might include in an onerous group of insurance contracts both onerous insurance contracts covered by a group of reinsurance contracts held and onerous insurance contracts not covered by the group of reinsurance....
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....ponent--adjust the loss component to nil and increase the liability for remaining coverage excluding the loss component by the same amount. C17A To the extent permitted by paragraph C8, an entity shall apply paragraphs C14B‒C14D to recognise an asset for insurance acquisition cash flows, and any adjustment to the contractual service margin of a group of insurance contracts with direct participation features for insurance acquisition cash flows (see paragraph C17(c)(iv)). Insurance finance income or expenses C18 For groups of insurance contracts that, applying paragraph C10, include contracts issued more than one year apart: (a) an entity is permitted to determine the discount rates at the date of initial recognition of a group specified in paragraphs B72(b)-B72(e)(ii) and the discount rates at the date of the incurred claim specified in paragraph B72(e)(iii) at the transition date instead of at the date of initial recognition or incurred claim. (b) if an entity chooses to disaggregate insurance finance income or expenses between amounts included in profit or loss and amounts included in other comprehensive income applying paragraphs 88(b) or 89(b), the entity needs to ....
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....amount recognised in other comprehensive income on the underlying items. C19A Applying paragraph B137, an entity may choose not to change the treatment of accounting estimates made in previous interim financial statements. To the extent permitted by paragraph C8, such an entity shall determine amounts related to insurance finance income or expenses at the transition date as if it had not prepared interim financial statements before the transition date. Fair value approach C20 To apply the fair value approach, an entity shall determine the contractual service margin or loss component of the liability for remaining coverage at the transition date as the difference between the fair value of a group of insurance contracts at that date and the fulfilment cash flows measured at that date. In determining that fair value, an entity shall not apply paragraph 47 of Ind AS 113, Fair Value Measurement (relating to demand features). C20A For a group of reinsurance contracts held to which paragraphs 66A-66B apply (without the need to meet the condition set out in paragraph B119C), an entity shall determine the loss-recovery component of the asset for remaining coverage at the transition date....
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....t. An entity shall only divide groups into those including only contracts issued within a year (or less) if it has reasonable and supportable information to make the division. Whether or not an entity applies paragraph 22, it is permitted to determine the discount rates at the date of initial recognition of a group specified in paragraphs B72(b)-B72(e)(ii) and the discount rates at the date of the incurred claim specified in paragraph B72(e)(iii) at the transition date instead of at the date of initial recognition or incurred claim. C24 In applying the fair value approach, if an entity chooses to disaggregate insurance finance income or expenses between profit or loss and other comprehensive income, it is permitted to determine the cumulative amount of insurance finance income or expenses recognised in other comprehensive income at the transition date: (a) retrospectively--but only if it has reasonable and supportable information to do so; or (b) as nil--unless (c) applies; and (c) for insurance contracts with direct participation features to which paragraph B134 applies--as equal to the cumulative amount recognised in other comprehensive income from the underlying items. A....
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....in which it first applies Ind AS 117. However, if an entity does not disclose that information, it shall disclose that fact. Entities that first apply Ind AS 117 and Ind AS 109 at the same time C28A An entity that first applies Ind AS 117 and Ind AS 109 at the same time is permitted to apply paragraphs C28B-C28E (classification overlay) for the purpose of presenting comparative information about a financial asset where the comparative information for that financial asset has not been restated for Ind AS 109. Comparative information for a financial asset will not be restated for Ind AS 109 where the entity restates prior periods but the financial asset has been derecognised during those prior periods (see paragraph 7.2.1 of Ind AS 109). C28B An entity applying the classification overlay to a financial asset shall present comparative information as if the classification and measurement requirements of Ind AS 109 had been applied to that financial asset. The entity shall use reasonable and supportable information available at the transition date (see paragraph C2(b)) to determine how the entity expects the financial asset would be classified and measured on initial application of I....
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....al assets that would not be eligible for reassessment are financial assets held in respect of banking activities or financial assets held in funds relating to investment contracts that are outside the scope of Ind AS 117. (b) shall revoke its previous designation of a financial asset as measured at fair value through profit or loss if the condition in paragraph 4.1.5 of Ind AS 109 is no longer met because of the application of Ind AS 117. (c) may designate a financial asset as measured at fair value through profit or loss if the condition in paragraph 4.1.5 of Ind AS 109 is met. (d) may designate an investment in an equity instrument as at fair value through other comprehensive income applying paragraph 5.7.5 of Ind AS 109. (e) may revoke its previous designation of an investment in an equity instrument as at fair value through other comprehensive income applying paragraph 5.7.5 of Ind AS 109. C30 An entity shall apply paragraph C29 on the basis of the facts and circumstances that exist at the date of initial application of Ind AS 117. An entity shall apply those designations and classifications retrospectively. In doing so, the entity shall apply the relevant transition r....
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.... and date of initial application of Ind AS 117, an entity may apply paragraphs C28B-C28E (classification overlay) for the purpose of presenting comparative information as if paragraph C29 had been applied to that asset. Such an entity shall adapt the requirements of paragraphs C28B-C28E so that the classification overlay is based on how the entity expects the financial asset would be designated applying paragraph C29 at the date of initial application of Ind AS 117. Withdrawal of other Indian Accounting Standards C34 Ind AS 117 supersedes Ind AS 104 Insurance Contracts. Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 117 and the corresponding International Financial Reporting Standard (IFRS) 17, Insurance Contracts, issued by the International Accounting Standards Board. Comparison with IFRS 17, Insurance Contracts 1. IFRS 17, Insurance Contracts, is applicable globally with effect from 1st January 2023. In India, it shall be applicable with effect from 1st April 2024. In case of insurance companies, early application of ....