Introducing IFRS 17

IFRS 17 Insurance contracts establish the principles for the recognition, measurement,
presentation and disclosure of Insurance contracts within the scope of the Standard. The
objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully
represents those contracts. This information gives a basis for users of financial statements to
assess the effect that insurance contracts have on the entity's financial position, financial
performance and cash flows. IFRS 17 will have an effect to anybody that has insurance
contracts. The focus is on transactions and not entities, by this it mainly refer to insurance
contracts and not insurance entities. The insurance industry holds a central role in the global
economy, in that, insurance enables the transfer of risks and is significant for long- term
investors in capital markets. The specific scope exceptions in IFRS 17 (Section 7) is product
warranties issued by manufacturer, retailer or dealer, financial guarantee contracts and fixed-fee
contract (Section 8) where a service provider agrees to provide an uncertain future service in
return for a fixed-fee. IFRS 17 also requires companies to be transparent through reporting of its
financial position, risk position and its performance over time. The Insurance obligations and
risks are measured based on updated information. An insurer with major contract using updated
current instruments that reflect the expected future cash flows and its timing and uncertainties.
The measurements are based on obligations created through the contract. The recognition of
revenue by insurer or the Insurance revenue in IFRS 17 it brings revenue into account that
excludes deposits and it is reported on an earned basis. It brings treatment of insurance
contracts in line with the treatment of other types of contract. Insurance performance is about
the profitability. IFRS 17 requires companies to provide information that drives the current and
future profits that they receive from insurance contracts. The two key drivers of profitability
which is insurance service result and investment result are both equal drives but they are
disclosed separately. The Effective date and transitions (Appendix C1- C2) states that IFRS 17
is effective for annual periods beginning on or after January 2021, if it is applied earlier, it shall
be disclosed. Early application is permitted for entities that apply IFRS 9 Financial Instruments
and IFRS 15 Revenue from Contracts with Customers on or before the date of initial application
of IFRS 17. Other transition reliefs mentioned to ease first application is the option to apply
optional fair value approach or modified retrospective approach.
Understanding IFRS 17
 IFRS 17 is developed because IFRS 4 which is the previous standard lacks relevant and
transparent information. Many of the prior policies lack useful information by use of old
assumptions and lack of transparency about company profitability that hinders the
understanding of how an entity is really performing. The lack of comparability among insurers,
and non- uniform reporting within groups and being inconsistent with other industry would be
some of the current issues. The presentation or the format of the income statement IFRS 17
(Section 80-82) summarized would appear the same whatever type of insurance contract is
issued. The sources of earnings have the separate subtitle for the insurance service result and
net financial result. While in the format of the balance sheet IFRS (Section 78-79),the line item
Reinsurance contract assets is the group of insurance and reinsurance contracts in an asset
position presented separately from those in liability position and the Insurance contract liabilities
is the acquisition cost cash flows, premiums receivable and unearned premiums are included in
the measurement of insurance contracts. Insurance liability is made up of Present Value of
Future cash flows (Section 33) which are current estimates and probability weighted and
unbiased, the risk adjustments and unearned profit. IFRS 17 referred to this as General Model
for the measurement of liabilities, which is frequently referred to as the Building Block Approach.
Present value of future cash flows (Section 33) is a current estimate of all future cash flows of
an insurance company that are directly related to a contract (e.g. premiums, benefits, directly
allocable costs etc.). Risk Adjustment (Section 37) would be because the first describe the
expected value of future benefits, it is advisable to allocate additional funds for an uncertainty
related to the first estimate. Contractual Service Margin CSM (Section 38) is the present value
of expected profits on an insurance contract which are attributable to future periods and
recognized over time as the insurance service is performed.

Scope of IFRS 17
 As stated in IFRS 17(Appendix C34), IFRS 17 supersedes IFRS 4Insurance Contracts,
as amended in 2016. It requires the consistent use of accounting for insurance contracts based
on a current measurement model. (Appendix C1- C2) states that IFRS 17 is effective for annual
periods beginning on or after January 2021, if it is applied earlier, it shall be disclosed. An
insurance contract is where a policy holder transfers its significant insurance risk to the issuer.
Then the issuer promise to compensate the policyholder for the happening of an insured event.
Examples of an insurance contract are insurance risk is loss on accidents or life insurance
wherein payment is made to beneficiaries on death of insured person. Annuities pay fix amount
to policy holder throughout the life of policy holder the uncertainty would be based on the policy
holder life. Some of the derivatives are insurance contracts, but not all. They should transfer
significant insurance risk, like when policy holder have pre existing non-financial risk and the
insured event must have an adverse effect on policy holder. Some of the exclusions from the
scope of IFRS 17 (Section 7) are warranties issued by manufacturers, the retirement benefit
obligations and insurance contracts held by an entity except reinsurance contracts. The two
options to account for some insurance contracts are financial guarantee contracts (Section 7e)
IFRS 17 or IFRS 9 and has no change in IFRS 4 and specified fixed-fee service contracts
(Section 8) IFRS 17 or IFRS 15 and has change in IFRS 4. IFRS 17 makes entity holder of
reinsurance contracts or the policy holder. IFRS 17 also includes contracts without significant
contract risk these are investment contracts with discretionary payments. The entity must
separate and identify non- insurance components which are (Section 10-13) specified
embedded derivatives (IFRS 9) and distinct investment components (IFRS 9) and distinct goods
and non insurance services (IFRS 15). For the measurement purpose, insurance contracts are
cash flows remaining after separating non-insurance components. The measurement
requirements (Section 32) of insurance contracts is the sum of Present Value of Future cash
flows which are current estimates and probability weighted and unbiased, the risk adjustments
and unearned profit. The presentation of the income statement (Section 80-82) insurance
revenue and expenses are recognized as earned or incurred. In presentation of the balance
sheet (Section 78-79),the line item Reinsurance contract assets is the group of insurance and
reinsurance contracts in an asset position presented separately from those in liability position
and the Insurance contract liabilities is the acquisition cost cash flows, premiums receivable and
unearned premiums are included in the measurement of insurance contracts.