The first element of measuring fulfilment cash flows in the general model1 (used in measuring insurance contracts2) is an estimate of future cash flows within the contract boundary period of each contract in a group. Estimates of future cash flows should [IFRS 17 333]:
Include all cash flows that are within the contract boundary, reference to the following articles:
An entity may estimate the future cash flows at a higher level of aggregation than a group and then allocate the resulting fulfilment cash flows to individual groups of contracts.
Cash flows referred to in IFRS 17 are primarily payments of cash exchanged between the parties under an insurance contract in accordance with the terms and conditions of the contract. The term “cash flow” can also be used as shorthand for other transfers of economic resources (cash flow equivalents) that are not settled in cash between the parties to the insurance contract. They may also include such items as administration costs, payments to third parties and non-cash transactions such as the provision of goods and services.
IFRS 17 B65 provides examples of cash flows that are typically included within the boundary of the contract. They include but are not limited to:
- Premiums Estimates of future cash flows
- Payments to policyholders including claims that have been reported but not yet paid, incurred claims that have not yet been reported and future claims on unexpired risks Estimates of future cash flows
- An allocation of insurance acquisition costs Estimates of future cash flows
- Claim handling costs including those for payments in kind Estimates of future cash flows
- Policy administration and maintenance costs Estimates of future cash flows
- Transaction-based costs such as premium taxes Estimates of future cash flows
- Potential cash inflows from recoveries
- An allocation of fixed and variable overheads
Sometimes, it might be permissible (e.g. due to immateriality) to also consider cash flows exchanged between the parties under the contract not based on the actual payment date but based on a due date or the date when the triggering event incurs.