These examples of the main Financial Statements statements demonstrate the requirements in respect of presentation and disclosure according to IFRS 17 Insurance contracts. They also include the requirements (introduced or amended) in respect of presentation and disclosure according to IFRS 9 Financial instruments and IFRS 7 Financial instruments: Disclosures.
It is prepared for illustrative purposes only and should be used in conjunction with the relevant financial reporting standards and any other reporting pronouncements and legislation applicable in specific jurisdictions. Main FS Statements Insurance contracts
Presentation of insurance service result Main FS Statements Insurance contracts
Insurance revenue reflects the consideration to which the insurer expects to be entitled in exchange for the services provided on an earned basis. Insurance revenue under IFRS 17 is no longer equal to the premium received in the period. IFRS 17 makes it clear that an insurer should not present premium information in profit or loss if that information is not in line with the definition of insurance revenue.
|IFRS 17 85,|
Many insurance premiums include an investment (i.e. deposit) component – an amount that will be paid to policyholders or their beneficiaries regardless of whether an insured event occurs. The receipt and repayment of these non-distinct investment components do not relate to the provision of insurance service; therefore, such amounts are not presented as part of the insurer’s revenue or insurance service expenses.
|IFRS 17 11(b)||Entities apply IFRS 9 to account for distinct investment components (not interrelated with insurance and able to be sold separately). That is, the related net investment income is excluded from the insurance service result and presented separately.|
|IFRS 17 42(a),|
Insurance revenue includes insurance claims and other directly attributable expenses as expected at the beginning of the reporting period and does not include experience adjustments relating to these amounts (insurance service expenses) that arise during the year. Experience adjustments related to premium receipts for current and past periods are included in insurance revenue, however.
|IFRS 17 32, 38,|
Under IFRS 4, many insurers recognise deferred acquisition cash flows separately as assets. Under IFRS 17, for insurance contracts measured under the general model (GM) and the variable fee approach (VFA), insurance acquisition cash flows decrease the CSM and are thus implicitly deferred within the CSM, leading to a lower amount of CSM amortisation recognised in revenue in future reporting periods as services are rendered. However, for presentation purposes, directly attributable acquisition costs are amortised as an insurance service expense in a systematic way on the basis of the passage of time with an equal amount recognised as insurance revenue.
|IFRS 17 55, 59(a)|
Under the premium allocation approach (PAA), an entity should recognise insurance acquisition cash flows in the liability for remaining coverage (LRC) and amortise insurance acquisition cash flows as insurance service expenses. Alternatively, an entity can choose to recognise insurance acquisition cash flows as an expense when incurred if each insurance contract in a group has a coverage period of one year or less.
When applying IFRS 17, any lack of recoverability of the acquisition cash flows is reflected in the measurement of the insurance contracts, eliminating complex mechanisms that exist under IFRS 4 to deal with amortisation and impairment of the separate asset.
|IFRS 17 37,|
The risk adjustment in the insurance liability reflects the compensation that an insurer requires for bearing the uncertainty arising from non-financial risk. For insurance contracts issued, a portion of the risk adjustment for nonfinancial risk relating to the LRC is recognised in insurance revenue as the risk is released, while a portion relating to the liability for incurred claims (LIC) is recognised in insurance service expenses. An insurer is not required to include the entire change in the risk adjustment for non-financial risk in the insurance service result. Instead, it can choose to split the amount between the insurance service result and insurance finance income or expenses. Among other impacts, disaggregation would result in higher insurance revenue and higher finance expenses, though it represents a more complex option operationally.
|IFRS 17 84 – 85|
Only items that reflect insurance service expenses (i.e. incurred claims and other insurance service expenses arising from insurance contracts the insurer issues) are reported as insurance expenses. As a result, when applying IFRS 17, repayment of non-distinct investment components is not presented as an insurance expense but rather as a settlement of an insurance liability.
|IFRS 17 82,|
IFRS 17 allows options in presenting income or expenses from reinsurance contracts held, other than insurance finance income or expenses. The insurer elected to present a single net amount in net expenses from reinsurance contracts held. An alternative would be to gross up this single amount and present separately the amounts recovered from the reinsurer (as income) and an allocation of the premiums paid (as reinsurance expenses) in line items separate from insurance revenue and insurance service expenses.
Presentation of net investment income Main FS Statements Insurance contracts
Post-adoption of IFRS 9, the line item ‘Interest revenue’ can contain only interest income on assets that are measured at amortised cost (AC) or fair value through other comprehensive income (FVOCI) (subject to the effect of applying hedge accounting to derivatives in designated hedging relationships). If, as a matter of accounting policy choice, additional line items are presented on the face of the statement of profit or loss for interest on instruments measured at fair value through profit or loss (FVTPL), this policy, including how such amounts are calculated and on which instruments, should be disclosed.
Gains and losses on the derecognition of financial assets measured at AC and credit impairment losses are now required to be presented separately on the face of the statement of profit or loss.
Consequential amendments to IAS 1, Presentation of Financial Statements (IAS 1), from the introduction of IFRS 9 require entities to present gains and losses arising from the reclassification of financial assets from AC to FVTPL, and from FVOCI to FVTPL, on the face of the statement of profit and loss. Such reclassifications under IFRS 9 are expected to be rare and therefore have not been illustrated.
IFRS 7 20 requires, among other things, a disclosure, either in the statement of profit or loss or in the notes, of net gains or net losses on financial assets or financial liabilities measured at FVTPL, showing separately those designated upon initial recognition and those that are mandatorily measured at FVTPL. For financial liabilities, gains or losses recognised in profit or loss and those recognised in other comprehensive income (OCI) should be shown separately. The Group provides these disclosures in the notes.
Presentation of assets and liabilities in general and for insurance contracts and investments Main FS Statements Insurance contracts
Presentation of assets and liabilities in the order of liquidity
IAS 1 allows the presentation of assets and liabilities on the balance sheet in the order of liquidity without segregating by current and non-current. In most cases, for insurance companies, this way of presentation is judged to be more relevant for the users as this type of entity does not have a clearly identifiable operating cycle.
IAS 1 still requires disclosing the amount expected to be recovered or settled after more than 12 months for each asset and liability line item that combines these amounts with amounts to be recovered/settled not more than 12 months after the reporting date. When the balance sheet is presented in the order of liquidity, such disclosure is made in the notes to the financial statements.
Presentation of insurance assets and liabilities
IFRS 17 requires all rights and obligations from a group of insurance contracts, such as insurance liabilities, policyholder loans, insurance premium receivables, and insurance intangible assets, to be presented net in one line on the balance sheet, unless the components of the insurance contract are separated.
Groups of insurance contracts in an asset position are presented separately from those in a liability position (no offsetting). Groups of insurance contracts issued are presented separately from groups of reinsurance contracts held.
When applying IFRS 17, investment components, certain embedded derivatives and goods, and non-insurance services are separated from insurance contracts if and only if they are distinct from the insurance component.
|IFRS 17 32 (a),|
33 – 35,
IFRS 17 requires an entity to include in the measurement of groups of insurance contracts all fulfillment cash flows (FCF), including directly attributable acquisition cash flows unless the entity elects to expense these acquisition costs when incurred for insurance contracts measured under the PAA. Therefore, a separate asset associated with the acquisition of insurance contracts is not recognized.
Presentation of investment assets and liabilities
IFRS 7 8 requires disclosure, either on the balance sheet or in the notes, of the carrying amounts of financial assets and liabilities by the following categories:
In the example, these categories are disclosed in the notes. However, depending on the materiality of these items, a separate presentation on the face of the balance sheet may be more appropriate.
Main FS Statements Insurance contracts Main FS Statements Insurance contracts Main FS Statements Insurance contracts
Main FS Statements Insurance contracts Main FS Statements Insurance contracts Main FS Statements Insurance contracts
Presentation of the statement of cash flows Main FS Statements Insurance contracts
Reporting cash flows from operating activities
An entity should report cash flows from operating activities either by using the direct or indirect method. The indirect method, whereby profit or loss is adjusted for the effects of non-cash items, any deferrals or accruals of past or future operating cash receipts or payments and items of income or expenses associated with investing or financing cash flows, is shown in the example above.
The direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed, could also be used for reporting cash flows from operating activities. Cash flows from investing and financing activities have to be reported by using the direct method.
Cash flows from purchases and sales of investment assets
The classification of certain transactions for the purposes of the statement of cash flows may be different for two entities as it depends on the nature of the business and operations. The insurer classifies cash flows for the purchase and disposal of investment assets in its operating cash flows as the purchases are funded from the cash flows associated with the origination of insurance and investment contracts, net of the cash flows for payments of insurance benefits and claims and investment contract benefits.
Cash flows from distinct investment components or non-risk transfer contracts
For some insurance contracts with distinct investment components and issued contracts that do not transfer insurance risk, an insurer may need to consider if some or all of the cash flows are financing in nature and should be classified as such.
Cash flows from interest rate swaps
IAS 7 does not provide a clear guidance on how to classify cash flows from derivatives. In the Illustration, the classification of net cash from interest rate swaps follows the one for the underlying instrument, subordinated debt, that the swaps economically hedge and is so presented within financing activities. The insurer does not apply hedge accounting for these instruments.