The International Financial Reporting Standards (IFRS) has issued a simple one-page summary of the accounting model in IFRS 17 Insurance Contracts on 19 January 2018.
The summary provides simple yet sufficient information to help the stakeholders to understand the different elements of the model and how they will be displayed on a company’s balance sheet and in its profit or loss statement.
Under IFRS 17, the general model requires entities to measure an insurance contract at initial recognition at the total of the fulfilment cash flows and the contractual service margin. The fulfilment cash flows are re-measured on a current basis each reporting period. The unearned profit is recognised over the coverage period.
Apart from the general model, the IFRS 17 provides, as a simple premium allocation approach that is applicable for certain types of contract, including those with a coverage period of one year or less.
For insurance contracts with direct participation features, the variable fee approach will apply. The variable fee approach is a variation on the general mode, where the entity’s share of the fair value changes of the underlying items is included in the contractual service margin. Consequently, the fair value changes are not recognised in profit or loss in the period in which they occur but over the remaining life of the contract.
IFRS 17 is applicable for annual periods beginning on or after 1 January 2021. Early application is permitted for entities that apply IFRS 9, ‘Financial Instruments’, and IFRS 15, ‘Revenue from Contracts with Customers’, at or before the date of initial application of IFRS 17.
IFRS 17 can be applied retrospectively in accordance with IAS 8, but it also contains a ‘modified retrospective approach’ and a ‘fair value approach’ for transition depending on the availability of data.
More details about the IFRS 17 and the one-page summary can be viewed / downloaded from the IFRS website.
Source: IFRS, 21 January 2018