Timing of Initial Recognition of Insurance contracts

Groups of insurance contracts are initially recognised from the earliest of [IFRS 17 25]:

  • when the coverage period starts;
  • when the first payment from the policyholder is due, or actually received if there is no due date; and
  • based on the facts and circumstances, when the entity determines that the group of contracts is onerous.

An entity should include individual contracts in an already existing group only when they are issued. The standard notes that an entity can issue more contracts in a group after the end of a reporting period. This could lead to a change in the discount rate from initial recognition of the group.

Illustration  — Determining the date of recognition of a group of insurance contracts

Example 1 Timing of Initial Recognition of Insurance contracts

An entity issues insurance contracts, that form a group, to policyholders beginning on 25 December 2020. The coverage period of the group begins on 1 January 2021 and the first premium from a policyholder in the group is due 5 January 2021.

The group of insurance contracts is not onerous. The group of insurance contracts is recognised on 1 January 2021 (i.e., the start of the coverage period of the group) which is earlier than the date that the first premium is due.

Example 2 Timing of Initial Recognition of Insurance contracts

An entity issues insurance contracts, that form a group, to policyholders beginning on 25 December 2021. The coverage period of the group begins on 1 January 2022 and the first premium from a policyholder in the group is due on 30 December 2021. The group of insurance contracts is not onerous.

The group of insurance contracts is recognised on 30 December 2021 (i.e., the date that the first premium is due), which is before the coverage period begins. However, if the entity has a reporting date of 31 December 2021, only those contracts within the group issued as of the reporting date will be recognised in the financial statements for the period ending 31 December 2021.

Example 3 Timing of Initial Recognition of Insurance contracts

An entity issues insurance contracts, that form a group, to policyholders beginning on 25 December 2022. On that day, the entity determines that the group of insurance contracts is onerous. The coverage period of the group begins on 1 January 2023 and the first premium from a policyholder in the group is due on 5 January 2023.

The group of insurance contracts is recognised on 25 December 2022 which is when the group of insurance contracts is determined to be onerous. However, if the entity has a reporting date of 31 December 2022, only those contracts within the group issued as at the reporting date will be recognised in the financial statements for the period ending 31 December 2022.

 

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