Information Collection Insurance Contracts – FAQ | IFRS

Information collection insurance contracts

The objective of estimating future cash flows is to determine the expected value, or the 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 [IFRS 17 B37]. Information collection insurance contracts

An entity need not identify every possible scenario. The complexity of techniques an entity uses to estimate the full range of outcomes will depend on the complexity of the cash flows of a group of insurance contracts and the underlying factors that drive cash flows. In some cases, relatively simple modelling may give an answer within an acceptable range of precision, without the need for many detailed simulations. However, in some cases, the cash flows may be driven by complex underlying factors and may respond in a non-linear fashion to changes in economic conditions. This may occur if, for example, the cash flows reflect a series of interrelated options that are implicit or explicit. In such cases, it is likely that more sophisticated stochastic modelling will be necessary to satisfy the measurement objective.

The future cash flow estimates must be on an expected value basis and be unbiased. This means that they should exclude any additional estimates above the probability-weighted mean for “uncertainty”, “prudence” or what is sometimes described as “management loading”. The risk adjustment for non-financial risk is intended to reflect the compensation for bearing the non-financial risk resulting from the uncertain amount and the timing of cash flows. Information collection insurance contracts

Reasonable and supportable information available at the reporting date without undue cost or effort includes information available from an entity’s own information systems about past events and current conditions, and forecasts of future conditions. An entity should estimate the probabilities and amounts of future payments under existing contracts based on information obtained, including [IFRS 17 B41]:

  • Information about claims already reported by policyholders Information collection insurance contracts
  • Other information about the known or estimated characteristics of the insurance contracts
  • Historical data about the entity’s own experience, supplemented when necessary with data from other sources. Historical data is adjusted to reflect current conditions, for example, if: Information collection insurance contracts
    • Characteristics of the insured 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. Information collection insurance contracts
    • 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. Information collection insurance contracts
    • There have been changes in items such as underwriting and claims management procedures that may affect the relevance of historical data to the insurance contracts. Information collection insurance contracts
  • Current price information, if available. The standard refers to 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.

The measurement of a group of insurance contracts should reflect, on an expected value basis, the entity’s current estimates of how the policyholders in the group will exercise the options available, e.g., renewal, surrender and conversion options, and options to stop paying premiums while still receiving benefits under the contracts. Information collection insurance contracts


  • Techniques such as stochastic modelling 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.

  • Some insurers currently include management loadings or other forms of prudence within insurance liabilities. Implicit prudence in reserving tends to reduce volatility in profits. IFRS 17 requires calculation and disclosure of a point estimate of the mean of the expected future cash flows discounted to the reporting date with an explicit risk margin for non-financial risk. Insurers will need to educate investors about the potential effect of IFRS 17 on reported profits if they expect that the volatility of their results is likely to increase when they apply IFRS 17.

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