Insurance Contracts Measurement Quiz

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Questions and Answers

When should an entity recognize a group of insurance contracts it issues?

When the group of contracts is deemed to be profitable.

On the date the contract is signed by the policyholder.

When the first payment from a policyholder in the group is received. (correct)

From the beginning of the coverage period of the group of contracts. (correct)

What is required for an entity to measure a group of contracts effectively?

All contracts in the group must be individually profitable.

The contracts must be reassessed every reporting period.

The measurement must only include contracts written in the current year.

Fulfilment cash flows may be estimated at a higher level of aggregation. (correct)

Which is NOT a condition for recognizing a group of insurance contracts?

The beginning of the coverage period of the contracts.

The group must become onerous.

The date when the first payment becomes due.

A contractual due date must exist. (correct)

What must an entity do if evidence indicates the existence of a group of onerous contracts?

Determine if the contracts form a group before certain dates. Signup and view all the answers

What happens to a contract that meets the recognition criteria after a reporting period?

The contract may be included if it meets criteria. Signup and view all the answers

How should an entity estimate discount rates at the date of initial recognition?

As per the current market conditions and estimates. Signup and view all the answers

In establishing groups of contracts for measurement, what must an entity avoid?

Reassessing the composition of groups subsequently. Signup and view all the answers

Which of the following statements about onerous contracts is accurate?

A group becomes onerous when the group's losses exceed expected profits. Signup and view all the answers

What is included in the carrying amount of a group of insurance contracts at the end of each reporting period?

Liability for remaining coverage and liability for incurred claims Signup and view all the answers

What primarily comprises the liability for remaining coverage?

Fulfilment cash flows related to future service and the contractual service margin Signup and view all the answers

Which of the following is NOT recognized as insurance revenue?

Losses on onerous contracts Signup and view all the answers

What expense is recognized for claims incurred during the reporting period?

Insurance service expenses Signup and view all the answers

How is the insurance finance income or expenses recognized?

Based on the time value of money and financial risk Signup and view all the answers

Which option describes the liability for incurred claims?

It comprises fulfilment cash flows related to past service Signup and view all the answers

What must an entity recognize for any subsequent changes in fulfilment cash flows relating to incurred claims?

Insurance service expenses Signup and view all the answers

Which component is part of the liability for remaining coverage but not for incurred claims?

Contractual service margin Signup and view all the answers

What is the primary objective of IFRS 17?

To establish principles for the recognition, measurement, presentation, and disclosure of insurance contracts Signup and view all the answers

Which section addresses the levels at which insurance contracts should be aggregated?

Level of Aggregation of Insurance Contracts Signup and view all the answers

What does the Premium Allocation Approach primarily pertain to under IFRS 17?

It relates to the recognition of insurance revenue over the contract period Signup and view all the answers

In the context of IFRS 17, what is considered an onerous contract?

A contract expected to incur losses over its duration Signup and view all the answers

What aspect does the 'Recognition' section in IFRS 17 address?

Principles governing when to recognize insurance contracts and related cash flows Signup and view all the answers

Which section of IFRS 17 discusses the nature of risks that arise from insurance contracts?

Nature and Extent of Risks Signup and view all the answers

What is included in the 'Presentation in the Statement of Financial Position' section?

Guidelines for displaying insurance contract values and liabilities Signup and view all the answers

What is a key focus of the 'Modification and Derecognition' section?

The conditions under which an insurance contract should be removed from the financial records Signup and view all the answers

What is excluded from insurance revenue and insurance service expenses?

Investment components Signup and view all the answers

Which of the following relates to changes that apply to future service?

Changes in estimates adjusting the contractual service margin Signup and view all the answers

What must be disclosed separately when reconciling relevant amounts?

Changes in estimates that do not adjust the contractual service margin Signup and view all the answers

Which of the following is true regarding risk adjustments for non-financial risk?

They do not relate to future service or past service Signup and view all the answers

What reflects the transfer of services in the current service context?

Amount of contractual service margin recognized in profit or loss Signup and view all the answers

What is required regarding incurred claims when discussing investment components?

They should not include investment components Signup and view all the answers

What must be reconciled to reflect changes relating to past service?

Fulfilment cash flows relating to incurred claims Signup and view all the answers

Which of the following is included in the accounting for changes related to current service?

Changes in risk adjustment not relating to past service Signup and view all the answers

Which components must be considered when measuring the contractual service margin at the end of the reporting period?

Interest accreted and changes in future service Signup and view all the answers

What must be adjusted in the contractual service margin calculation due to new contracts?

The effect of the new contracts added to the group Signup and view all the answers

Which of the following factors does NOT contribute to adjustments in the contractual service margin?

New contracts in another reporting period Signup and view all the answers

How should changes in fulfilment cash flows relating to future service be treated in the calculation of the contractual service margin?

They must be adjusted unless they are from onerous contracts. Signup and view all the answers

What discount rates should be used for measuring interest accreted on the contractual service margin?

Discount rates specified in paragraph B72(b) Signup and view all the answers

What is the relationship between recognized profit or loss and the contractual service margin?

Profit or loss must be allocated over the current coverage period of the group. Signup and view all the answers

What happens to the effect of currency exchange differences in the context of the contractual service margin?

They are added to the contractual service margin. Signup and view all the answers

What must occur before applying the adjustments for a group of reinsurance contracts held?

The carrying amount must be established at the end of the reporting period. Signup and view all the answers

Study Notes

Recognition and Measurement of Insurance Contracts

Entities must apply IFRS 17 recognition and measurement requirements to groups of insurance contracts determined at initial recognition.
Groups of contracts are established at initial recognition; subsequent reassessment of their composition is prohibited.
Fulfilment cash flows may be estimated at a higher aggregation level as long as appropriate cash flows are included in the measurement of the group.

Recognition Criteria for Insurance Contracts

A group of insurance contracts is recognized upon the earliest of:
- The beginning of the coverage period.
- The date when the first payment from a policyholder becomes due.
- When the group of contracts is deemed onerous.
If no contractual due date exists, the first payment is considered due upon receipt.
Identification of onerous contracts must occur before the specific recognition dates, if warranted by circumstances.

Grouping Contracts and Subsequent Additions

Only contracts satisfying one of the recognition criteria at the time of reporting are included in the group.
Estimates for discount rates and coverage units must be determined upon initial recognition.
Additional contracts can be added to the group after the reporting period if they meet the recognition criteria.

Measurement of the Contractual Service Margin for Reinsurance

The contractual service margin is measured at the end of the reporting period based on the carrying amount at the start, adjusted for:
- New contracts added to the group.
- Interest accrued on the previous carrying amount.
- Income recognized or loss recoveries during the reporting period.
- Changes related to future service, unless exceptions apply.
- Currency exchange differences on the contractual service margin.

Subsequent Measurement Requirements

The carrying amount at the end of each reporting period consists of:
- Liability for remaining coverage, including fulfilment cash flows and contractual service margin.
- Liability for incurred claims, based on fulfilment cash flows related to past service.
Changes in the carrying amount of liabilities entail recognition of:
- Insurance revenue for reductions in remaining coverage liability.
- Insurance service expenses for losses and reversals on onerous contracts.
- Insurance finance income or expenses due to the time value of money.

Disclosure and Reporting

Entities are required to separately disclose amounts related to services that affect the contractual service margin and indicate changes associated with future, current, and past service.
Reconciliation of service amounts should delineate impacts on the contractual service margin and provide clarity on incurred claims and service expenses.

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Description

Test your knowledge on the recognition and measurement of insurance contracts under IFRS 17. This quiz covers key concepts such as the recognition criteria for groups of contracts and the estimation of fulfilment cash flows. Challenge yourself to understand the complexities involved in insurance contracts management!