IFRS 17 Insurance Contracts PDF

IFRS 17 IFRS 17 Insurance Contracts In March 2004 the International Accounting Standards Board (Board) issued IFRS 4 Insurance Contracts. IFRS 4 was an interim standard which was meant to be in place until the Board completed its project on insurance contracts. IFRS 4 permitted entities to use a w...

IFRS 17 IFRS 17 Insurance Contracts In March 2004 the International Accounting Standards Board (Board) issued IFRS 4 Insurance Contracts. IFRS 4 was an interim standard which was meant to be in place until the Board completed its project on insurance contracts. IFRS 4 permitted entities to use a wide variety of accounting practices for insurance contracts, reflecting national accounting requirements and variations of those requirements, subject to limited improvements and specified disclosures. In May 2017, the Board completed its project on insurance contracts with the issuance of IFRS 17 Insurance Contracts. IFRS 17 replaces IFRS 4 and sets out principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of IFRS 17. In June 2020, the Board issued Amendments to IFRS 17. The objective of the amendments is to assist entities implementing the Standard, while not unduly disrupting implementation or diminishing the usefulness of the information provided by applying IFRS 17. In December 2021, the Board issued Initial Application of IFRS 17 and IFRS 9—Comparative Information (Amendment to IFRS 17). The minor amendment relates to the transition to IFRS 17. Other Standards have made minor consequential amendments to IFRS 17, including Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018) and Definition of Material (Amendments to IAS 1 and IAS 8) (issued October 2018). © IFRS Foundation A871 IFRS 17 CONTENTS from paragraph IFRS 17 INSURANCE CONTRACTS OBJECTIVE 1 SCOPE 3 Combination of insurance contracts 9 Separating components from an insurance contract 10 LEVEL OF AGGREGATION OF INSURANCE CONTRACTS 14 RECOGNITION 25 Insurance acquisition cash flows 28A MEASUREMENT 29 Measurement on initial recognition 32 Subsequent measurement 40 Onerous contracts 47 Premium allocation approach 53 Reinsurance contracts held 60 Investment contracts with discretionary participation features 71 MODIFICATION AND DERECOGNITION 72 Modification of an insurance contract 72 Derecognition 74 PRESENTATION IN THE STATEMENT OF FINANCIAL POSITION 78 RECOGNITION AND PRESENTATION IN THE STATEMENT(S) OF FINANCIAL PERFORMANCE 80 Insurance service result 83 Insurance finance income or expenses 87 DISCLOSURE 93 Explanation of recognised amounts 97 Significant judgements in applying IFRS 17 117 Nature and extent of risks that arise from contracts within the scope of IFRS 17 121 APPENDICES A Defined terms B Application guidance C Effective date and transition D Amendments to other IFRS Standards APPROVAL BY THE BOARD OF IFRS 17 INSURANCE CONTRACTS APPROVAL BY THE BOARD OF AMENDMENTS TO IFRS 17 ISSUED IN JUNE 2020 continued... A872 © IFRS Foundation  IFRS 17...continued APPROVAL BY THE BOARD OF INITIAL APPLICATION OF IFRS 17 AND IFRS 9—COMPARATIVE INFORMATION ISSUED IN DECEMBER 2021 FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION ILLUSTRATIVE EXAMPLES FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION BASIS FOR CONCLUSIONS © IFRS Foundation A873 IFRS 17 IFRS 17 Insurance Contracts is set out in paragraphs 1–132 and appendices A–D. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time that they appear in the Standard. Definitions of other terms are given in the Glossary for IFRS Standards. The Standard should be read in the context of its objective and the Basis for Conclusions, the Preface to IFRS Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. A874 © IFRS Foundation  IFRS 17 International Financial Reporting Standard 17 Insurance Contracts Objective 1 IFRS 17 Insurance Contracts establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the Standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows. 2 An entity shall consider its substantive rights and obligations, whether they arise from a contract, law or regulation, when applying IFRS 17. A contract is an agreement between two or more parties that creates enforceable rights and obligations. Enforceability of the rights and obligations in a contract is a matter of law. Contracts can be written, oral or implied by an entity’s customary business practices. Contractual terms include all terms in a contract, explicit or implied, but an entity shall disregard terms that have no commercial substance (ie no discernible effect on the economics of the contract). Implied terms in a contract include those imposed by law or regulation. The practices and processes for establishing contracts with customers vary across legal jurisdictions, industries and entities. In addition, they may vary within an entity (for example, they may depend on the class of customer or the nature of the promised goods or services). Scope 3 An entity shall apply IFRS 17 to: (a) insurance contracts, including reinsurance contracts, it issues; (b) reinsurance contracts it holds; and (c) investment contracts with discretionary participation features it issues, provided the entity also issues insurance contracts. 4 All references in IFRS 17 to insurance contracts also apply to: (a) reinsurance contracts held, except: (i) for references to insurance contracts issued; and (ii) as described in paragraphs 60–70A. (b) investment contracts with discretionary participation features as set out in paragraph 3(c), except for the reference to insurance contracts in paragraph 3(c) and as described in paragraph 71. 5 All references in IFRS 17 to insurance contracts issued also apply to insurance contracts acquired by the entity in a transfer of insurance contracts or a business combination other than reinsurance contracts held. © IFRS Foundation A875 IFRS 17 6 Appendix A defines an insurance contract and paragraphs B2–B30 of Appendix B provide guidance on the definition of an insurance contract. 7 An entity shall not apply IFRS 17 to: (a) warranties provided by a manufacturer, dealer or retailer in connection with the sale of its goods or services to a customer (see IFRS 15 Revenue from Contracts with Customers). (b) employers’ assets and liabilities from employee benefit plans (see IAS 19 Employee Benefits and IFRS 2 Share-based Payment) and retirement benefit obligations reported by defined benefit retirement plans (see IAS 26 Accounting and Reporting by Retirement Benefit Plans). (c) contractual rights or contractual obligations contingent on the future use of, or the right to use, a non-financial item (for example, some licence fees, royalties, variable and other contingent lease payments and similar items: see IFRS 15, IAS 38 Intangible Assets and IFRS 16 Leases). (d) residual value guarantees provided by a manufacturer, dealer or retailer and a lessee’s residual value guarantees when they are embedded in a lease (see IFRS 15 and IFRS 16). (e) financial guarantee contracts, unless the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts. The issuer shall choose to apply either IFRS 17 or IAS 32 Financial Instruments: Presentation, IFRS 7 Financial Instruments: Disclosures and IFRS 9 Financial Instruments to such financial guarantee contracts. The issuer may make that choice contract by contract, but the choice for each contract is irrevocable. (f) contingent consideration payable or receivable in a business combination (see IFRS 3 Business Combinations). (g) insurance contracts in which the entity is the policyholder, unless those contracts are reinsurance contracts held (see paragraph 3(b)). (h) credit card contracts, or similar contracts that provide credit or payment arrangements, that meet the definition of an insurance contract if, and only if, the entity does not reflect an assessment of the insurance risk associated with an individual customer in setting the price of the contract with that customer (see IFRS 9 and other applicable IFRS Standards). However, if, and only if, IFRS 9 requires an entity to separate an insurance coverage component (see paragraph 2.1(e)(iv) of IFRS 9) that is embedded in such a contract, the entity shall apply IFRS 17 to that component. 8 Some contracts meet the definition of an insurance contract but have as their primary purpose the provision of services for a fixed fee. An entity may choose to apply IFRS 15 instead of IFRS 17 to such contracts that it issues if, and only if, specified conditions are met. The entity may make that choice contract by contract, but the choice for each contract is irrevocable. The conditions are: A876 © IFRS Foundation  IFRS 17 (a) the entity does not reflect an assessment of the risk associated with an individual customer in setting the price of the contract with that customer; (b) the contract compensates the customer by providing services, rather than by making cash payments to the customer; and (c) the insurance risk transferred by the contract arises primarily from the customer’s use of services rather than from uncertainty over the cost of those services. 8A Some contracts meet the definition of an insurance contract but limit the compensation for insured events to the amount otherwise required to settle the policyholder’s obligation created by the contract (for example, loans with death waivers). An entity shall choose to apply either IFRS 17 or IFRS 9 to such contracts that it issues unless such contracts are excluded from the scope of IFRS 17 by paragraph 7. The entity shall make that choice for each portfolio of insurance contracts, and the choice for each portfolio is irrevocable. Combination of insurance contracts 9 A set or series of insurance contracts with the same or a related counterparty may achieve, or be designed to achieve, an overall commercial effect. In order to report the substance of such contracts, it may be necessary to treat the set or series of contracts as a whole. For example, if the rights or obligations in one contract do nothing other than entirely negate the rights or obligations in another contract entered into at the same time with the same counterparty, the combined effect is that no rights or obligations exist. Separating components from an insurance contract (paragraphs B31–B35) 10 An insurance contract may contain one or more components that would be within the scope of another Standard if they were separate contracts. For example, an insurance contract may include an investment component or a component for services other than insurance contract services (or both). An entity shall apply paragraphs 11–13 to identify and account for the components of the contract. 11 An entity shall: (a) apply IFRS 9 to determine whether there is an embedded derivative to be separated and, if there is, how to account for that derivative. (b) separate from a host insurance contract an investment component if, and only if, that investment component is distinct (see paragraphs B31–B32). The entity shall apply IFRS 9 to account for the separated investment component unless it is an investment contract with discretionary participation features within the scope of IFRS 17 (see paragraph 3(c)). © IFRS Foundation A877 IFRS 17 12 After applying paragraph 11 to separate any cash flows related to embedded derivatives and distinct investment components, an entity shall separate from the host insurance contract any promise to transfer to a policyholder distinct goods or services other than insurance contract services, applying paragraph 7 of IFRS 15. The entity shall account for such promises applying IFRS 15. In applying paragraph 7 of IFRS 15 to separate the promise, the entity shall apply paragraphs B33–B35 of IFRS 17 and, on initial recognition, shall: (a) apply IFRS 15 to attribute the cash inflows between the insurance component and any promises to provide distinct goods or services other than insurance contract services; and (b) attribute the cash outflows between the insurance component and any promised goods or services other than insurance contract services, accounted for applying IFRS 15 so that: (i) cash outflows that relate directly to each component are attributed to that component; and (ii) any remaining cash outflows are attributed on a systematic and rational basis, reflecting the cash outflows the entity would expect to arise if that component were a separate contract. 13 After applying paragraphs 11–12, an entity shall apply IFRS 17 to all remaining components of the host insurance contract. Hereafter, all references in IFRS 17 to embedded derivatives refer to derivatives that have not been separated from the host insurance contract and all references to investment components refer to investment components that have not been separated from the host insurance contract (except those references in paragraphs B31–B32). Level of aggregation of insurance contracts 14 An entity shall identify portfolios of insurance contracts. A portfolio comprises contracts subject to similar risks and managed together. Contracts within a product line would be expected to have similar risks and hence would be expected to be in the same portfolio if they are managed together. Contracts in different product lines (for example single premium fixed annuities compared with regular term life assurance) would not be expected to have similar risks and hence would be expected to be in different portfolios. 15 Paragraphs 16–24 apply to insurance contracts issued. The requirements for the level of aggregation of reinsurance contracts held are set out in paragraph 61. 16 An entity shall divide a portfolio of insurance contracts issued into a minimum of: (a) a group of contracts that are onerous at initial recognition, if any; (b) a group of contracts that at initial recognition have no significant possibility of becoming onerous subsequently, if any; and A878 © IFRS Foundation  IFRS 17 (c) a group of the remaining contracts in the portfolio, if any. 17 If an entity has reasonable and supportable information to conclude that a set of contracts will all be in the same group applying paragraph 16, it may measure the set of contracts to determine if the contracts are onerous (see paragraph 47) and assess the set of contracts to determine if the contracts have no significant possibility of becoming onerous subsequently (see paragraph 19). If the entity does not have reasonable and supportable information to conclude that a set of contracts will all be in the same group, it shall determine the group to which contracts belong by considering individual contracts. 18 For contracts issued to which an entity applies the premium allocation approach (see paragraphs 53–59), the entity shall assume no contracts in the portfolio are onerous at initial recognition, unless facts and circumstances indicate otherwise. An entity shall assess whether contracts that are not onerous at initial recognition have no significant possibility of becoming onerous subsequently by assessing the likelihood of changes in applicable facts and circumstances. 19 For contracts issued to which an entity does not apply the premium allocation approach (see paragraphs 53–54), an entity shall assess whether contracts that are not onerous at initial recognition have no significant possibility of becoming onerous: (a) based on the likelihood of changes in assumptions which, if they occurred, would result in the contracts becoming onerous. (b) using information about estimates provided by the entity’s internal reporting. Hence, in assessing whether contracts that are not onerous at initial recognition have no significant possibility of becoming onerous: (i) an entity shall not disregard information provided by its internal reporting about the effect of changes in assumptions on different contracts on the possibility of their becoming onerous; but (ii) an entity is not required to gather additional information beyond that provided by the entity’s internal reporting about the effect of changes in assumptions on different contracts. 20 If, applying paragraphs 14–19, contracts within a portfolio would fall into different groups only because law or regulation specifically constrains the entity’s practical ability to set a different price or level of benefits for policyholders with different characteristics, the entity may include those contracts in the same group. The entity shall not apply this paragraph by analogy to other items. 21 An entity is permitted to subdivide the groups described in paragraph 16. For example, an entity may choose to divide the portfolios into: (a) more groups that are not onerous at initial recognition—if the entity’s internal reporting provides information that distinguishes: © IFRS Foundation A879 IFRS 17 (i) different levels of profitability; or (ii) different possibilities of contracts becoming onerous after initial recognition; and (b) more than one group of contracts that are onerous at initial recognition—if the entity’s internal reporting provides information at a more detailed level about the extent to which the contracts are onerous. 22 An entity shall not include contracts issued more than one year apart in the same group. To achieve this the entity shall, if necessary, further divide the groups described in paragraphs 16–21. 23 A group of insurance contracts shall comprise a single contract if that is the result of applying paragraphs 14–22. 24 An entity shall apply the recognition and measurement requirements of IFRS 17 to the groups of contracts determined by applying paragraphs 14–23. An entity shall establish the groups at initial recognition and add contracts to the groups applying paragraph 28. The entity shall not reassess the composition of the groups subsequently. To measure a group of contracts, an entity may estimate the fulfilment cash flows at a higher level of aggregation than the group or portfolio, provided the entity is able to include the appropriate fulfilment cash flows in the measurement of the group, applying paragraphs 32(a), 40(a)(i) and 40(b), by allocating such estimates to groups of contracts. Recognition 25 An entity shall recognise a group of insurance contracts it issues from the earliest of the following: (a) the beginning of the coverage period of the group of contracts; (b) the date when the first payment from a policyholder in the group becomes due; and (c) for a group of onerous contracts, when the group becomes onerous. 26 If there is no contractual due date, the first payment from the policyholder is deemed to be due when it is received. An entity is required to determine whether any contracts form a group of onerous contracts applying paragraph 16 before the earlier of the dates set out in paragraphs 25(a) and 25(b) if facts and circumstances indicate there is such a group. 27 [Deleted] 28 In recognising a group of insurance contracts in a reporting period, an entity shall include only contracts that individually meet one of the criteria set out in paragraph 25 and shall make estimates for the discount rates at the date of initial recognition (see paragraph B73) and the coverage units provided in the reporting period (see paragraph B119). An entity may include more contracts in the group after the end of a reporting period, subject to paragraphs 14–22. A880 © IFRS Foundation  IFRS 17 An entity shall add a contract to the group in the reporting period in which that contract meets one of the criteria set out in paragraph 25. This may result in a change to the determination of the discount rates at the date of initial recognition applying paragraph B73. An entity shall apply the revised rates from the start of the reporting period in which the new contracts are added to the group. Insurance acquisition cash flows (paragraphs B35A‒ B35D) 28A An entity shall allocate insurance acquisition cash flows to groups of insurance contracts using a systematic and rational method applying paragraphs B35A‒ B35B, unless it chooses to recognise them as expenses applying paragraph 59(a). 28B An entity not applying paragraph 59(a) shall recognise as an asset insurance acquisition cash flows paid (or insurance acquisition cash flows for which a liability has been recognised applying another IFRS Standard) before the related group of insurance contracts is recognised. An entity shall recognise such an asset for each related group of insurance contracts. 28C An entity shall derecognise an asset for insurance acquisition cash flows when the insurance acquisition cash flows are included in the measurement of the related group of insurance contracts applying paragraph 38(c)(i) or paragraph 55(a)(iii). 28D If paragraph 28 applies, an entity shall apply paragraphs 28B‒28C in accordance with paragraph B35C. 28E At the end of each reporting period, an entity shall assess the recoverability of an asset for insurance acquisition cash flows if facts and circumstances indicate the asset may be impaired (see paragraph B35D). If an entity identifies an impairment loss, the entity shall adjust the carrying amount of the asset and recognise the impairment loss in profit or loss. 28F An entity shall recognise in profit or loss a reversal of some or all of an impairment loss previously recognised applying paragraph 28E and increase the carrying amount of the asset, to the extent that the impairment conditions no longer exist or have improved. Measurement (paragraphs B36–B119F) 29 An entity shall apply paragraphs 30–52 to all groups of insurance contracts within the scope of IFRS 17, with the following exceptions: (a) for groups of insurance contracts meeting either of the criteria specified in paragraph 53, an entity may simplify the measurement of the group using the premium allocation approach in paragraphs 55–59. © IFRS Foundation A881 IFRS 17 (b) for groups of reinsurance contracts held, an entity shall apply paragraphs 32–46 as required by paragraphs 63–70A. Paragraph 45 (on insurance contracts with direct participation features) and paragraphs 47–52 (on onerous contracts) do not apply to groups of reinsurance contracts held. (c) for groups of investment contracts with discretionary participation features, an entity shall apply paragraphs 32–52 as modified by paragraph 71. 30 When applying IAS 21 The Effects of Changes in Foreign Exchange Rates to a group of insurance contracts that generate cash flows in a foreign currency, an entity shall treat the group of contracts, including the contractual service margin, as a monetary item. 31 In the financial statements of an entity that issues insurance contracts, the fulfilment cash flows shall not reflect the non-performance risk of that entity (non-performance risk is defined in IFRS 13 Fair Value Measurement). Measurement on initial recognition (paragraphs B36–B95F) 32 On initial recognition, an entity shall measure a group of insurance contracts at the total of: (a) the fulfilment cash flows, which comprise: (i) estimates of future cash flows (paragraphs 33–35); (ii) an adjustment to reflect the time value of money and the financial risks related to the future cash flows, to the extent that the financial risks are not included in the estimates of the future cash flows (paragraph 36); and (iii) a risk adjustment for non-financial risk (paragraph 37). (b) the contractual service margin, measured applying paragraphs 38–39. Estimates of future cash flows (paragraphs B36–B71) 33 An entity shall include in the measurement of a group of insurance contracts all the future cash flows within the boundary of each contract in the group (see paragraph 34). Applying paragraph 24, an entity may estimate the future cash flows at a higher level of aggregation and then allocate the resulting fulfilment cash flows to individual groups of contracts. The estimates of future cash flows shall: (a) incorporate, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the amount, timing and uncertainty of those future cash flows (see paragraphs B37–B41). To do this, an entity shall estimate the expected value (ie the probability-weighted mean) of the full range of possible outcomes. A882 © IFRS Foundation  IFRS 17 (b) reflect the perspective of the entity, provided that the estimates of any relevant market variables are consistent with observable market prices for those variables (see paragraphs B42–B53). (c) be current—the estimates shall reflect conditions existing at the measurement date, including assumptions at that date about the future (see paragraphs B54–B60). (d) be explicit—the entity shall estimate the adjustment for non- financial risk separately from the other estimates (see paragraph B90). The entity also shall estimate the cash flows separately from the adjustment for the time value of money and financial risk, unless the most appropriate measurement technique combines these estimates (see paragraph B46). 34 Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting period in which the entity can compel the policyholder to pay the premiums or in which the entity has a substantive obligation to provide the policyholder with insurance contract services (see paragraphs B61–B71). A substantive obligation to provide insurance contract services ends when: (a) the entity has the practical ability to reassess the risks of the particular policyholder and, as a result, can set a price or level of benefits that fully reflects those risks; or (b) both of the following criteria are satisfied: (i) the entity has the practical ability to reassess the risks of the portfolio of insurance contracts that contains the contract and, as a result, can set a price or level of benefits that fully reflects the risk of that portfolio; and (ii) the pricing of the premiums up to the date when the risks are reassessed does not take into account the risks that relate to periods after the reassessment date. 35 An entity shall not recognise as a liability or as an asset any amounts relating to expected premiums or expected claims outside the boundary of the insurance contract. Such amounts relate to future insurance contracts. Discount rates (paragraphs B72–B85) 36 An entity shall adjust the estimates of future cash flows to reflect the time value of money and the financial risks related to those cash flows, to the extent that the financial risks are not included in the estimates of cash flows. The discount rates applied to the estimates of the future cash flows described in paragraph 33 shall: (a) reflect the time value of money, the characteristics of the cash flows and the liquidity characteristics of the insurance contracts; © IFRS Foundation A883 IFRS 17 (b) be consistent with observable current market prices (if any) for financial instruments with cash flows whose characteristics are consistent with those of the insurance contracts, in terms of, for example, timing, currency and liquidity; and (c) exclude the effect of factors that influence such observable market prices but do not affect the future cash flows of the insurance contracts. Risk adjustment for non-financial risk (paragraphs B86–B92) 37 An entity shall adjust the estimate of the present value of the future cash flows to reflect the compensation that the entity requires for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk. Contractual service margin 38 The contractual service margin is a component of the asset or liability for the group of insurance contracts that represents the unearned profit the entity will recognise as it provides insurance contract services in the future. An entity shall measure the contractual service margin on initial recognition of a group of insurance contracts at an amount that, unless paragraph 47 (on onerous contracts) or paragraph B123A (on insurance revenue relating to paragraph 38(c)(ii)) applies, results in no income or expenses arising from: (a) the initial recognition of an amount for the fulfilment cash flows, measured by applying paragraphs 32–37; (b) any cash flows arising from the contracts in the group at that date; (c) the derecognition at the date of initial recognition of: (i) any asset for insurance acquisition cash flows applying paragraph 28C; and (ii) any other asset or liability previously recognised for cash flows related to the group of contracts as specified in paragraph B66A. 39 For insurance contracts acquired in a transfer of insurance contracts or in a business combination within the scope of IFRS 3, an entity shall apply paragraph 38 in accordance with paragraphs B93–B95F. Subsequent measurement 40 The carrying amount of a group of insurance contracts at the end of each reporting period shall be the sum of: (a) the liability for remaining coverage comprising: (i) the fulfilment cash flows related to future service allocated to the group at that date, measured applying paragraphs 33–37 and B36–B92; A884 © IFRS Foundation  IFRS 17 (ii) the contractual service margin of the group at that date, measured applying paragraphs 43–46; and (b) the liability for incurred claims, comprising the fulfilment cash flows related to past service allocated to the group at that date, measured applying paragraphs 33–37 and B36–B92. 41 An entity shall recognise income and expenses for the following changes in the carrying amount of the liability for remaining coverage: (a) insurance revenue—for the reduction in the liability for remaining coverage because of services provided in the period, measured applying paragraphs B120–B124; (b) insurance service expenses—for losses on groups of onerous contracts, and reversals of such losses (see paragraphs 47–52); and (c) insurance finance income or expenses—for the effect of the time value of money and the effect of financial risk as specified in paragraph 87. 42 An entity shall recognise income and expenses for the following changes in the carrying amount of the liability for incurred claims: (a) insurance service expenses—for the increase in the liability because of claims and expenses incurred in the period, excluding any investment components; (b) insurance service expenses—for any subsequent changes in fulfilment cash flows relating to incurred claims and incurred expenses; and (c) insurance finance income or expenses—for the effect of the time value of money and the effect of financial risk as specified in paragraph 87. Contractual service margin (paragraphs B96–B119B) 43 The contractual service margin at the end of the reporting period represents the profit in the group of insurance contracts that has not yet been recognised in profit or loss because it relates to the future service to be provided under the contracts in the group. 44 For insurance contracts without direct participation features, the carrying amount of the contractual service margin of a group of contracts at the end of the reporting period equals the carrying amount at the start of the reporting period adjusted for: (a) the effect of any new contracts added to the group (see paragraph 28); (b) interest accreted on the carrying amount of the contractual service margin during the reporting period, measured at the discount rates specified in paragraph B72(b); (c) the changes in fulfilment cash flows relating to future service as specified in paragraphs B96–B100, except to the extent that: © IFRS Foundation A885 IFRS 17 (i) such increases in the fulfilment cash flows exceed the carrying amount of the contractual service margin, giving rise to a loss (see paragraph 48(a)); or (ii) such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage applying paragraph 50(b). (d) the effect of any currency exchange differences on the contractual service margin; and (e) the amount recognised as insurance revenue because of the transfer of insurance contract services in the period, determined by the allocation of the contractual service margin remaining at the end of the reporting period (before any allocation) over the current and remaining coverage period applying paragraph B119. 45 For insurance contracts with direct participation features (see paragraphs B101–B118), the carrying amount of the contractual service margin of a group of contracts at the end of the reporting period equals the carrying amount at the start of the reporting period adjusted for the amounts specified in subparagraphs (a)–(e) below. An entity is not required to identify these adjustments separately. Instead, a combined amount may be determined for some, or all, of the adjustments. The adjustments are: (a) the effect of any new contracts added to the group (see paragraph 28); (b) the change in the amount of the entity’s share of the fair value of the underlying items (see paragraph B104(b)(i)), except to the extent that: (i) paragraph B115 (on risk mitigation) applies; (ii) the decrease in the amount of the entity’s share of the fair value of the underlying items exceeds the carrying amount of the contractual service margin, giving rise to a loss (see paragraph 48); or (iii) the increase in the amount of the entity’s share of the fair value of the underlying items reverses the amount in (ii). (c) the changes in fulfilment cash flows relating to future service, as specified in paragraphs B101–B118, except to the extent that: (i) paragraph B115 (on risk mitigation) applies; (ii) such increases in the fulfilment cash flows exceed the carrying amount of the contractual service margin, giving rise to a loss (see paragraph 48); or (iii) such decreases in the fulfilment cash flows are allocated to the loss component of the liability for remaining coverage applying paragraph 50(b). (d) the effect of any currency exchange differences arising on the contractual service margin; and A886 © IFRS Foundation  IFRS 17 (e) the amount recognised as insurance revenue because of the transfer of insurance contract services in the period, determined by the allocation of the contractual service margin remaining at the end of the reporting period (before any allocation) over the current and remaining coverage period applying paragraph B119. 46 Some changes in the contractual service margin offset changes in the fulfilment cash flows for the liability for remaining coverage, resulting in no change in the total carrying amount of the liability for remaining coverage. To the extent that changes in the contractual service margin do not offset changes in the fulfilment cash flows for the liability for remaining coverage, an entity shall recognise income and expenses for the changes, applying paragraph 41. Onerous contracts 47 An insurance contract is onerous at the date of initial recognition if the fulfilment cash flows allocated to the contract, any previously recognised insurance acquisition cash flows and any cash flows arising from the contract at the date of initial recognition in total are a net outflow. Applying paragraph 16(a), an entity shall group such contracts separately from contracts that are not onerous. To the extent that paragraph 17 applies, an entity may identify the group of onerous contracts by measuring a set of contracts rather than individual contracts. An entity shall recognise a loss in profit or loss for the net outflow for the group of onerous contracts, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows and the contractual service margin of the group being zero. 48 A group of insurance contracts becomes onerous (or more onerous) on subsequent measurement if the following amounts exceed the carrying amount of the contractual service margin: (a) unfavourable changes relating to future service in the fulfilment cash flows allocated to the group arising from changes in estimates of future cash flows and the risk adjustment for non-financial risk; and (b) for a group of insurance contracts with direct participation features, the decrease in the amount of the entity’s share of the fair value of the underlying items. Applying paragraphs 44(c)(i), 45(b)(ii) and 45(c)(ii), an entity shall recognise a loss in profit or loss to the extent of that excess. 49 An entity shall establish (or increase) a loss component of the liability for remaining coverage for an onerous group depicting the losses recognised applying paragraphs 47–48. The loss component determines the amounts that are presented in profit or loss as reversals of losses on onerous groups and are consequently excluded from the determination of insurance revenue. © IFRS Foundation A887 IFRS 17 50 After an entity has recognised a loss on an onerous group of insurance contracts, it shall allocate: (a) the subsequent changes in fulfilment cash flows of the liability for remaining coverage specified in paragraph 51 on a systematic basis between: (i) the loss component of the liability for remaining coverage; and (ii) the liability for remaining coverage, excluding the loss component. (b) solely to the loss component until that component is reduced to zero: (i) any subsequent decrease relating to future service in fulfilment cash flows allocated to the group arising from changes in estimates of future cash flows and the risk adjustment for non- financial risk; and (ii) any subsequent increases in the amount of the entity’s share of the fair value of the underlying items. Applying paragraphs 44(c)(ii), 45(b)(iii) and 45(c)(iii), an entity shall adjust the contractual service margin only for the excess of the decrease over the amount allocated to the loss component. 51 The subsequent changes in the fulfilment cash flows of the liability for remaining coverage to be allocated applying paragraph 50(a) are: (a) estimates of the present value of future cash flows for claims and expenses released from the liability for remaining coverage because of incurred insurance service expenses; (b) changes in the risk adjustment for non-financial risk recognised in profit or loss because of the release from risk; and (c) insurance finance income or expenses. 52 The systematic allocation required by paragraph 50(a) shall result in the total amounts allocated to the loss component in accordance with paragraphs 48–50 being equal to zero by the end of the coverage period of a group of contracts. Premium allocation approach 53 An entity may simplify the measurement of a group of insurance contracts using the premium allocation approach set out in paragraphs 55–59 if, and only if, at the inception of the group: (a) the entity reasonably expects that such simplification would produce a measurement of the liability for remaining coverage for the group that would not differ materially from the one that would be produced applying the requirements in paragraphs 32–52; or A888 © IFRS Foundation  IFRS 17 (b) the coverage period of each contract in the group (including insurance contract services arising from all premiums within the contract boundary determined at that date applying paragraph 34) is one year or less. 54 The criterion in paragraph 53(a) is not met if at the inception of the group an entity expects significant variability in the fulfilment cash flows that would affect the measurement of the liability for remaining coverage during the period before a claim is incurred. Variability in the fulfilment cash flows increases with, for example: (a) the extent of future cash flows relating to any derivatives embedded in the contracts; and (b) the length of the coverage period of the group of contracts. 55 Using the premium allocation approach, an entity shall measure the liability for remaining coverage as follows: (a) on initial recognition, the carrying amount of the liability is: (i) the premiums, if any, received at initial recognition; (ii) minus any insurance acquisition cash flows at that date, unless the entity chooses to recognise the payments as an expense applying paragraph 59(a); and (iii) plus or minus any amount arising from the derecognition at that date of: 1. any asset for insurance acquisition cash flows applying paragraph 28C; and 2. any other asset or liability previously recognised for cash flows related to the group of contracts as specified in paragraph B66A. (b) at the end of each subsequent reporting period, the carrying amount of the liability is the carrying amount at the start of the reporting period: (i) plus the premiums received in the period; (ii) minus insurance acquisition cash flows; unless the entity chooses to recognise the payments as an expense applying paragraph 59(a); (iii) plus any amounts relating to the amortisation of insurance acquisition cash flows recognised as an expense in the reporting period; unless the entity chooses to recognise insurance acquisition cash flows as an expense applying paragraph 59(a); (iv) plus any adjustment to a financing component, applying paragraph 56; (v) minus the amount recognised as insurance revenue for services provided in that period (see paragraph B126); and © IFRS Foundation A889 IFRS 17 (vi) minus any investment component paid or transferred to the liability for incurred claims. 56 If insurance contracts in the group have a significant financing component, an entity shall adjust the carrying amount of the liability for remaining coverage to reflect the time value of money and the effect of financial risk using the discount rates specified in paragraph 36, as determined on initial recognition. The entity is not required to adjust the carrying amount of the liability for remaining coverage to reflect the time value of money and the effect of financial risk if, at initial recognition, the entity expects that the time between providing each part of the services and the related premium due date is no more than a year. 57 If at any time during the coverage period, facts and circumstances indicate that a group of insurance contracts is onerous, an entity shall calculate the difference between: (a) the carrying amount of the liability for remaining coverage determined applying paragraph 55; and (b) the fulfilment cash flows that relate to remaining coverage of the group, applying paragraphs 33–37 and B36–B92. However, if, in applying paragraph 59(b), the entity does not adjust the liability for incurred claims for the time value of money and the effect of financial risk, it shall not include in the fulfilment cash flows any such adjustment. 58 To the extent that the fulfilment cash flows described in paragraph 57(b) exceed the carrying amount described in paragraph 57(a), the entity shall recognise a loss in profit or loss and increase the liability for remaining coverage. 59 In applying the premium allocation approach, an entity: (a) may choose to recognise any insurance acquisition cash flows as expenses when it incurs those costs, provided that the coverage period of each contract in the group at initial recognition is no more than one year. (b) shall measure the liability for incurred claims for the group of insurance contracts at the fulfilment cash flows relating to incurred claims, applying paragraphs 33–37 and B36–B92. However, the entity is not required to adjust future cash flows for the time value of money and the effect of financial risk if those cash flows are expected to be paid or received in one year or less from the date the claims are incurred. Reinsurance contracts held 60 The requirements in IFRS 17 are modified for reinsurance contracts held, as set out in paragraphs 61–70A. A890 © IFRS Foundation  IFRS 17 61 An entity shall divide portfolios of reinsurance contracts held applying paragraphs 14–24, except that the references to onerous contracts in those paragraphs shall be replaced with a reference to contracts on which there is a net gain on initial recognition. For some reinsurance contracts held, applying paragraphs 14–24 will result in a group that comprises a single contract. Recognition 62 Instead of applying paragraph 25, an entity shall recognise a group of reinsurance contracts held from the earlier of the following: (a) the beginning of the coverage period of the group of reinsurance contracts held; and (b) the date the entity recognises an onerous group of underlying insurance contracts applying paragraph 25(c), if the entity entered into the related reinsurance contract held in the group of reinsurance contracts held at or before that date. 62A Notwithstanding paragraph 62(a), an entity shall delay the recognition of a group of reinsurance contracts held that provide proportionate coverage until the date that any underlying insurance contract is initially recognised, if that date is later than the beginning of the coverage period of the group of reinsurance contracts held. Measurement 63 In applying the measurement requirements of paragraphs 32–36 to reinsurance contracts held, to the extent that the underlying contracts are also measured applying those paragraphs, the entity shall use consistent assumptions to measure the estimates of the present value of the future cash flows for the group of reinsurance contracts held and the estimates of the present value of the future cash flows for the group(s) of underlying insurance contracts. In addition, the entity shall include in the estimates of the present value of the future cash flows for the group of reinsurance contracts held the effect of any risk of non-performance by the issuer of the reinsurance contract, including the effects of collateral and losses from disputes. 64 Instead of applying paragraph 37, an entity shall determine the risk adjustment for non-financial risk so that it represents the amount of risk being transferred by the holder of the group of reinsurance contracts to the issuer of those contracts. 65 The requirements of paragraph 38 that relate to determining the contractual service margin on initial recognition are modified to reflect the fact that for a group of reinsurance contracts held there is no unearned profit but instead a net cost or net gain on purchasing the reinsurance. Hence, unless paragraph 65A applies, on initial recognition the entity shall recognise any net cost or net gain on purchasing the group of reinsurance contracts held as a contractual service margin measured at an amount equal to the sum of: (a) the fulfilment cash flows; © IFRS Foundation A891 IFRS 17 (b) the amount derecognised at that date of any asset or liability previously recognised for cash flows related to the group of reinsurance contracts held; (c) and any cash flows arising at that date; and (d) any income recognised in profit or loss applying paragraph 66A. 65A If the net cost of purchasing reinsurance coverage relates to events that occurred before the purchase of the group of reinsurance contracts held, notwithstanding the requirements of paragraph B5, the entity shall recognise such a cost immediately in profit or loss as an expense. 66 Instead of applying paragraph 44, an entity shall measure the contractual service margin at the end of the reporting period for a group of reinsurance contracts held as the carrying amount determined at the start of the reporting period, adjusted for: (a) the effect of any new contracts added to the group (see paragraph 28); (b) interest accreted on the carrying amount of the contractual service margin, measured at the discount rates specified in paragraph B72(b); (ba) income recognised in profit or loss in the reporting period applying paragraph 66A; (bb) reversals of a loss-recovery component recognised applying paragraph 66B (see paragraph B119F) to the extent those reversals are not changes in the fulfilment cash flows of the group of reinsurance contracts held; (c) changes in the fulfilment cash flows, measured at the discount rates specified in paragraph B72(c), to the extent that the change relates to future service, unless: (i) the change results from a change in fulfilment cash flows allocated to a group of underlying insurance contracts that does not adjust the contractual service margin for the group of underlying insurance contracts; or (ii) the change results from applying paragraphs 57‒58 (on onerous contracts), if the entity measures a group of underlying insurance contracts applying the premium allocation approach. (d) the effect of any currency exchange differences arising on the contractual service margin; and (e) the amount recognised in profit or loss because of services received in the period, determined by the allocation of the contractual service margin remaining at the end of the reporting period (before any allocation) over the current and remaining coverage period of the group of reinsurance contracts held, applying paragraph B119. A892 © IFRS Foundation  IFRS 17 66A An entity shall adjust the contractual service margin of a group of reinsurance contracts held, and as a result recognise income, when the entity recognises a loss on initial recognition of an onerous group of underlying insurance contracts or on addition of onerous underlying insurance contracts to a group (see paragraphs B119C‒B119E). 66B An entity shall establish (or adjust) a loss-recovery component of the asset for remaining coverage for a group of reinsurance contracts held depicting the recovery of losses recognised applying paragraphs 66(c)(i)‒(ii) and 66A. The loss-recovery component determines the amounts that are presented in profit or loss as reversals of recoveries of losses from reinsurance contracts held and are consequently excluded from the allocation of premiums paid to the reinsurer (see paragraph B119F). 67 Changes in the fulfilment cash flows that result from changes in the risk of non-performance by the issuer of a reinsurance contract held do not relate to future service and shall not adjust the contractual service margin. 68 Reinsurance contracts held cannot be onerous. Accordingly, the requirements of paragraphs 47–52 do not apply. Premium allocation approach for reinsurance contracts held 69 An entity may use the premium allocation approach set out in paragraphs 55–56 and 59 (adapted to reflect the features of reinsurance contracts held that differ from insurance contracts issued, for example the generation of expenses or reduction in expenses rather than revenue) to simplify the measurement of a group of reinsurance contracts held, if at the inception of the group: (a) the entity reasonably expects the resulting measurement would not differ materially from the result of applying the requirements in paragraphs 63–68; or (b) the coverage period of each contract in the group of reinsurance contracts held (including insurance coverage from all premiums within the contract boundary determined at that date applying paragraph 34) is one year or less. 70 An entity cannot meet the condition in paragraph 69(a) if, at the inception of the group, an entity expects significant variability in the fulfilment cash flows that would affect the measurement of the asset for remaining coverage during the period before a claim is incurred. Variability in the fulfilment cash flows increases with, for example: (a) the extent of future cash flows relating to any derivatives embedded in the contracts; and (b) the length of the coverage period of the group of reinsurance contracts held. © IFRS Foundation A893 IFRS 17 70A If an entity measures a group of reinsurance contracts held applying the premium allocation approach, the entity shall apply paragraph 66A by adjusting the carrying amount of the asset for remaining coverage instead of adjusting the contractual service margin. Investment contracts with discretionary participation features 71 An investment contract with discretionary participation features does not include a transfer of significant insurance risk. Consequently, the requirements in IFRS 17 for insurance contracts are modified for investment contracts with discretionary participation features as follows: (a) the date of initial recognition (see paragraphs 25 and 28) is the date the entity becomes party to the contract. (b) the contract boundary (see paragraph 34) is modified so that cash flows are within the contract boundary if they result from a substantive obligation of the entity to deliver cash at a present or future date. The entity has no substantive obligation to deliver cash if it has the practical ability to set a price for the promise to deliver the cash that fully reflects the amount of cash promised and related risks. (c) the allocation of the contractual service margin (see paragraphs 44(e) and 45(e)) is modified so that the entity shall recognise the contractual service margin over the duration of the group of contracts in a systematic way that reflects the transfer of investment services under the contract. Modification and derecognition Modification of an insurance contract 72 If the terms of an insurance contract are modified, for example by agreement between the parties to the contract or by a change in regulation, an entity shall derecognise the original contract and recognise the modified contract as a new contract, applying IFRS 17 or other applicable Standards if, and only if, any of the conditions in (a)–(c) are satisfied. The exercise of a right included in the terms of a contract is not a modification. The conditions are that: (a) if the modified terms had been included at contract inception: (i) the modified contract would have been excluded from the scope of IFRS 17, applying paragraphs 3–8A; (ii) an entity would have separated different components from the host insurance contract applying paragraphs 10–13, resulting in a different insurance contract to which IFRS 17 would have applied; (iii) the modified contract would have had a substantially different contract boundary applying paragraph 34; or A894 © IFRS Foundation  IFRS 17 (iv) the modified contract would have been included in a different group of contracts applying paragraphs 14–24. (b) the original contract met the definition of an insurance contract with direct participation features, but the modified contract no longer meets that definition, or vice versa; or (c) the entity applied the premium allocation approach in paragraphs 53–59 or paragraphs 69–70 to the original contract, but the modifications mean that the contract no longer meets the eligibility criteria for that approach in paragraph 53 or paragraph 69. 73 If a contract modification meets none of the conditions in paragraph 72, the entity shall treat changes in cash flows caused by the modification as changes in estimates of fulfilment cash flows by applying paragraphs 40–52. Derecognition 74 An entity shall derecognise an insurance contract when, and only when: (a) it is extinguished, ie when the obligation specified in the insurance contract expires or is discharged or cancelled; or (b) any of the conditions in paragraph 72 are met. 75 When an insurance contract is extinguished, the entity is no longer at risk and is therefore no longer required to transfer any economic resources to satisfy the insurance contract. For example, when an entity buys reinsurance, it shall derecognise the underlying insurance contract(s) when, and only when, the underlying insurance contract(s) is or are extinguished. 76 An entity derecognises an insurance contract from within a group of contracts by applying the following requirements in IFRS 17: (a) the fulfilment cash flows allocated to the group are adjusted to eliminate the present value of the future cash flows and risk adjustment for non-financial risk relating to the rights and obligations that have been derecognised from the group, applying paragraphs 40(a) (i) and 40(b); (b) the contractual service margin of the group is adjusted for the change in fulfilment cash flows described in (a), to the extent required by paragraphs 44(c) and 45(c), unless paragraph 77 applies; and (c) the number of coverage units for expected remaining insurance contract services is adjusted to reflect the coverage units derecognised from the group, and the amount of the contractual service margin recognised in profit or loss in the period is based on that adjusted number applying paragraph B119. 77 When an entity derecognises an insurance contract because it transfers the contract to a third party or derecognises an insurance contract and recognises a new contract applying paragraph 72, the entity shall instead of applying paragraph 76(b): © IFRS Foundation A895 IFRS 17 (a) adjust the contractual service margin of the group from which the contract has been derecognised, to the extent required by paragraphs 44(c) and 45(c), for the difference between (i) and either (ii) for contracts transferred to a third party or (iii) for contracts derecognised applying paragraph 72: (i) the change in the carrying amount of the group of insurance contracts resulting from the derecognition of the contract, applying paragraph 76(a). (ii) the premium charged by the third party. (iii) the premium the entity would have charged had it entered into a contract with equivalent terms as the new contract at the date of the contract modification, less any additional premium charged for the modification. (b) measure the new contract recognised applying paragraph 72 assuming that the entity received the premium described in (a)(iii) at the date of the modification. Presentation in the statement of financial position 78 An entity shall present separately in the statement of financial position the carrying amount of portfolios of: (a) insurance contracts issued that are assets; (b) insurance contracts issued that are liabilities; (c) reinsurance contracts held that are assets; and (d) reinsurance contracts held that are liabilities. 79 An entity shall include any assets for insurance acquisition cash flows recognised applying paragraph 28B in the carrying amount of the related portfolios of insurance contracts issued, and any assets or liabilities for cash flows related to portfolios of reinsurance contracts held (see paragraph 65(b)) in the carrying amount of the portfolios of reinsurance contracts held. Recognition and presentation in the statement(s) of financial performance (paragraphs B120–B136) 80 Applying paragraphs 41 and 42, an entity shall disaggregate the amounts recognised in the statement(s) of profit or loss and other comprehensive income (hereafter referred to as the statement(s) of financial performance) into: (a) an insurance service result (paragraphs 83–86), comprising insurance revenue and insurance service expenses; and (b) insurance finance income or expenses (paragraphs 87–92). A896 © IFRS Foundation  IFRS 17 81 An entity is not required to disaggregate the change in the risk adjustment for non-financial risk between the insurance service result and insurance finance income or expenses. If an entity does not make such a disaggregation, it shall include the entire change in the risk adjustment for non-financial risk as part of the insurance service result. 82 An entity shall present income or expenses from reinsurance contracts held separately from the expenses or income from insurance contracts issued. Insurance service result 83 An entity shall present in profit or loss insurance revenue arising from the groups of insurance contracts issued. Insurance revenue shall depict the provision of services arising from the group of insurance contracts at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those services. Paragraphs B120–B127 specify how an entity measures insurance revenue. 84 An entity shall present in profit or loss insurance service expenses arising from a group of insurance contracts issued, comprising incurred claims (excluding repayments of investment components), other incurred insurance service expenses and other amounts as described in paragraph 103(b). 85 Insurance revenue and insurance service expenses presented in profit or loss shall exclude any investment components. An entity shall not present premium information in profit or loss if that information is inconsistent with paragraph 83. 86 An entity may present the income or expenses from a group of reinsurance contracts held (see paragraphs 60–70A), other than insurance finance income or expenses, as a single amount; or the entity may present separately the amounts recovered from the reinsurer and an allocation of the premiums paid that together give a net amount equal to that single amount. If an entity presents separately the amounts recovered from the reinsurer and an allocation of the premiums paid, it shall: (a) treat reinsurance cash flows that are contingent on claims on the underlying contracts as part of the claims that are expected to be reimbursed under the reinsurance contract held; (b) treat amounts from the reinsurer that it expects to receive that are not contingent on claims of the underlying contracts (for example, some types of ceding commissions) as a reduction in the premiums to be paid to the reinsurer; (ba) treat amounts recognised relating to recovery of losses applying paragraphs 66(c)(i)‒(ii) and 66A‒66B as amounts recovered from the reinsurer; and (c) not present the allocation of premiums paid as a reduction in revenue. © IFRS Foundation A897 IFRS 17 Insurance finance income or expenses (see paragraphs B128–B136) 87 Insurance finance income or expenses comprises the change in the carrying amount of the group of insurance contracts arising from: (a) the effect of the time value of money and changes in the time value of money; and (b) the effect of financial risk and changes in financial risk; but (c) excluding any such changes for groups of insurance contracts with direct participation features that would adjust the contractual service margin but do not do so when applying paragraphs 45(b)(ii), 45(b)(iii), 45(c)(ii) or 45(c)(iii). These are included in insurance service expenses. 87A An entity shall apply: (a) paragraph B117A to insurance finance income or expenses arising from the application of paragraph B115 (risk mitigation); and (b) paragraphs 88 and 89 to all other insurance finance income or expenses. 88 In applying paragraph 87A(b), unless paragraph 89 applies, an entity shall make an accounting policy choice between: (a) including insurance finance income or expenses for the period in profit or loss; or (b) disaggregating insurance finance income or expenses for the period to include in profit or loss an amount determined by a systematic allocation of the expected total insurance finance income or expenses over the duration of the group of contracts, applying paragraphs B130–B133. 89 In applying paragraph 87A(b), for insurance contracts with direct participation features, for which the entity holds the underlying items, an entity shall make an accounting policy choice between: (a) including insurance finance income or expenses for the period in profit or loss; or (b) disaggregating insurance finance income or expenses for the period to include in profit or loss an amount that eliminates accounting mismatches with income or expenses included in profit or loss on the underlying items held, applying paragraphs B134–B136. 90 If an entity chooses the accounting policy set out in paragraph 88(b) or in paragraph 89(b), it shall include in other comprehensive income the difference between the insurance finance income or expenses measured on the basis set out in those paragraphs and the total insurance finance income or expenses for the period. A898 © IFRS Foundation  IFRS 17 91 If an entity transfers a group of insurance contracts or derecognises an insurance contract applying paragraph 77: (a) it shall reclassify to profit or loss as a reclassification adjustment (see IAS 1 Presentation of Financial Statements) any remaining amounts for the group (or contract) that were previously recognised in other comprehensive income because the entity chose the accounting policy set out in paragraph 88(b). (b) it shall not reclassify to profit or loss as a reclassification adjustment (see IAS 1) any remaining amounts for the group (or contract) that were previously recognised in other comprehensive income because the entity chose the accounting policy set out in paragraph 89(b). 92 Paragraph 30 requires an entity to treat an insurance contract as a monetary item under IAS 21 for the purpose of translating foreign exchange items into the entity’s functional currency. An entity includes exchange differences on changes in the carrying amount of groups of insurance contracts in the statement of profit or loss, unless they relate to changes in the carrying amount of groups of insurance contracts included in other comprehensive income applying paragraph 90, in which case they shall be included in other comprehensive income. Disclosure 93 The objective of the disclosure requirements is for an entity to disclose information in the notes that, together with the information provided in the statement of financial position, statement(s) of financial performance and statement of cash flows, gives a basis for users of financial statements to assess the effect that contracts within the scope of IFRS 17 have on the entity’s financial position, financial performance and cash flows. To achieve that objective, an entity shall disclose qualitative and quantitative information about: (a) the amounts recognised in its financial statements for contracts within the scope of IFRS 17 (see paragraphs 97–116); (b) the significant judgements, and changes in those judgements, made when applying IFRS 17 (see paragraphs 117–120); and (c) the nature and extent of the risks from contracts within the scope of IFRS 17 (see paragraphs 121–132). 94 An entity shall consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on each of the various requirements. If the disclosures provided, applying paragraphs 97–132, are not enough to meet the objective in paragraph 93, an entity shall disclose additional information necessary to meet that objective. © IFRS Foundation A899 IFRS 17 95 An entity shall aggregate or disaggregate information so that useful information is not obscured either by the inclusion of a large amount of insignificant detail or by the aggregation of items that have different characteristics. 96 Paragraphs 29–31 of IAS 1 set out requirements relating to materiality and aggregation of information. Examples of aggregation bases that might be appropriate for information disclosed about insurance contracts are: (a) type of contract (for example, major product lines); (b) geographical area (for example, country or region); or (c) reportable segment, as defined in IFRS 8 Operating Segments. Explanation of recognised amounts 97 Of the disclosures required by paragraphs 98–109A, only those in paragraphs 98–100, 102–103, 105‒105B and 109A apply to contracts to which the premium allocation approach has been applied. If an entity uses the premium allocation approach, it shall also disclose: (a) which of the criteria in paragraphs 53 and 69 it has satisfied; (b) whether it makes an adjustment for the time value of money and the effect of financial risk applying paragraphs 56, 57(b) and 59(b); and (c) the method it has chosen to recognise insurance acquisition cash flows applying paragraph 59(a). 98 An entity shall disclose reconciliations that show how the net carrying amounts of contracts within the scope of IFRS 17 changed during the period because of cash flows and income and expenses recognised in the statement(s) of financial performance. Separate reconciliations shall be disclosed for insurance contracts issued and reinsurance contracts held. An entity shall adapt the requirements of paragraphs 100–109 to reflect the features of reinsurance contracts held that differ from insurance contracts issued; for example, the generation of expenses or reduction in expenses rather than revenue. 99 An entity shall provide enough information in the reconciliations to enable users of financial statements to identify changes from cash flows and amounts that are recognised in the statement(s) of financial performance. To comply with this requirement, an entity shall: (a) disclose, in a table, the reconciliations set out in paragraphs 100–105B; and (b) for each reconciliation, present the net carrying amounts at the beginning and at the end of the period, disaggregated into a total for portfolios of contracts that are assets and a total for portfolios of contracts that are liabilities, that equal the amounts presented in the statement of financial position applying paragraph 78. A900 © IFRS Foundation  IFRS 17 100 An entity shall disclose reconciliations from the opening to the closing balances separately for each of: (a) the net liabilities (or assets) for the remaining coverage component, excluding any loss component. (b) any loss component (see paragraphs 47–52 and 57–58). (c) the liabilities for incurred claims. For insurance contracts to which the premium allocation approach described in paragraphs 53–59 or 69–70A has been applied, an entity shall disclose separate reconciliations for: (i) the estimates of the present value of the future cash flows; and (ii) the risk adjustment for non-financial risk. 101 For insurance contracts other than those to which the premium allocation approach described in paragraphs 53–59 or 69–70A has been applied, an entity shall also disclose reconciliations from the opening to the closing balances separately for each of: (a) the estimates of the present value of the future cash flows; (b) the risk adjustment for non-financial risk; and (c) the contractual service margin. 102 The objective of the reconciliations in paragraphs 100–101 is to provide different types of information about the insurance service result. 103 An entity shall separately disclose in the reconciliations required in paragraph 100 each of the following amounts related to services, if applicable: (a) insurance revenue. (b) insurance service expenses, showing separately: (i) incurred claims (excluding investment components) and other incurred insurance service expenses; (ii) amortisation of insurance acquisition cash flows; (iii) changes that relate to past service, ie changes in fulfilment cash flows relating to the liability for incurred claims; and (iv) changes that relate to future service, ie losses on onerous groups of contracts and reversals of such losses. (c) investment components excluded from insurance revenue and insurance service expenses (combined with refunds of premiums unless refunds of premiums are presented as part of the cash flows in the period described in paragraph 105(a)(i)). 104 An entity shall separately disclose in the reconciliations required in paragraph 101 each of the following amounts related to services, if applicable: © IFRS Foundation A901 IFRS 17 (a) changes that relate to future service, applying paragraphs B96–B118, showing separately: (i) changes in estimates that adjust the contractual service margin; (ii) changes in estimates that do not adjust the contractual service margin, ie losses on groups of onerous contracts and reversals of such losses; and (iii) the effects of contracts initially recognised in the period. (b) changes that relate to current service, ie: (i) the amount of the contractual service margin recognised in profit or loss to reflect the transfer of services; (ii) the change in the risk adjustment for non-financial risk that does not relate to future service or past service; and (iii) experience adjustments (see paragraphs B97(c) and B113(a)), excluding amounts relating to the risk adjustment for non- financial risk included in (ii). (c) changes that relate to past service, ie changes in fulfilment cash flows relating to incurred claims (see paragraphs B97(b) and B113(a)). 105 To complete the reconciliations in paragraphs 100–101, an entity shall also disclose separately each of the following amounts not related to services provided in the period, if applicable: (a) cash flows in the period, including: (i) premiums received for insurance contracts issued (or paid for reinsurance contracts held); (ii) insurance acquisition cash flows; and (iii) incurred claims paid and other insurance service expenses paid for insurance contracts issued (or recovered under reinsurance contracts held), excluding insurance acquisition cash flows. (b) the effect of changes in the risk of non-performance by the issuer of reinsurance contracts held; (c) insurance finance income or expenses; and (d) any additional line items that may be necessary to understand the change in the net carrying amount of the insurance contracts. 105A An entity shall disclose a reconciliation from the opening to the closing balance of assets for insurance acquisition cash flows recognised applying paragraph 28B. An entity shall aggregate information for the reconciliation at a level that is consistent with that for the reconciliation of insurance contracts, applying paragraph 98. 105B An entity shall separately disclose in the reconciliation required by paragraph 105A any impairment losses and reversals of impairment losses recognised applying paragraph 28E–28F. A902 © IFRS Foundation  IFRS 17 106 For insurance contracts issued other than those to which the premium allocation approach described in paragraphs 53–59 has been applied, an entity shall disclose an analysis of the insurance revenue recognised in the period comprising: (a) the amounts relating to the changes in the liability for remaining coverage as specified in paragraph B124, separately disclosing: (i) the insurance service expenses incurred during the period as specified in paragraph B124(a); (ii) the change in the risk adjustment for non-financial risk, as specified in paragraph B124(b); (iii) the amount of the contractual service margin recognised in profit or loss because of the transfer of insurance contract services in the period, as specified in paragraph B124(c); and (iv) other amounts, if any, for example, experience adjustments for premium receipts other than those that relate to future service as specified in paragraph B124(d). (b) the allocation of the portion of the premiums that relate to the recovery of insurance acquisition cash flows (see paragraph B125). 107 For insurance contracts other than those to which the premium allocation approach described in paragraphs 53–59 or 69–70A has been applied, an entity shall disclose the effect on the statement of financial position separately for insurance contracts issued and reinsurance contracts held that are initially recognised in the period, showing their effect at initial recognition on: (a) the estimates of the present value of future cash outflows, showing separately the amount of the insurance acquisition cash flows; (b) the estimates of the present value of future cash inflows; (c) the risk adjustment for non-financial risk; and (d) the contractual service margin. 108 In the disclosures required by paragraph 107, an entity shall separately disclose amounts resulting from: (a) contracts acquired from other entities in transfers of insurance contracts or business combinations; and (b) groups of contracts that are onerous. 109 For insurance contracts other than those to which the premium allocation approach described in paragraphs 53–59 or 69–70A has been applied, an entity shall disclose when it expects to recognise the contractual service margin remaining at the end of the reporting period in profit or loss quantitatively, in appropriate time bands. Such information shall be provided separately for insurance contracts issued and reinsurance contracts held. © IFRS Foundation A903 IFRS 17 109A An entity shall disclose quantitatively, in appropriate time bands, when it expects to derecognise an asset for insurance acquisition cash flows applying paragraph 28C. Insurance finance income or expenses 110 An entity shall disclose and explain the total amount of insurance finance income or expenses in the reporting period. In particular, an entity shall explain the relationship between insurance finance income or expenses and the investment return on its assets, to enable users of its financial statements to evaluate the sources of finance income or expenses recognised in profit or loss and other comprehensive income. 111 For contracts with direct participation features, the entity shall describe the composition of the underlying items and disclose their fair value. 112 For contracts with direct participation features, if an entity chooses not to adjust the contractual service margin for some changes in the fulfilment cash flows, applying paragraph B115, it shall disclose the effect of that choice on the adjustment to the contractual service margin in the current period. 113 For contracts with direct participation features, if an entity changes the basis of disaggregation of insurance finance income or expenses between profit or loss and other comprehensive income, applying paragraph B135, it shall disclose, in the period when the change in approach occurred: (a) the reason why the entity was required to change the basis of disaggregation; (b) the amount of any adjustment for each financial statement line item affected; and (c) the carrying amount of the group of insurance contracts to which the change applied at the date of the change. Transition amounts 114 An entity shall provide disclosures that enable users of financial statements to identify the effect of groups of insurance contracts measured at the transition date applying the modified retrospective approach (see paragraphs C6–C19A) or the fair value approach (see paragraphs C20–C24B) on the contractual service margin and insurance revenue in subsequent periods. Hence an entity shall disclose the reconciliation of the contractual service margin applying paragraph 101(c), and the amount of insurance revenue applying paragraph 103(a), separately for: (a) insurance contracts that existed at the transition date to which the entity has applied the modified retrospective approach; (b) insurance contracts that existed at the transition date to which the entity has applied the fair value approach; and (c) all other insurance contracts. A904 © IFRS Foundation  IFRS 17 115 For all periods in which disclosures are made applying paragraphs 114(a) or 114(b), to enable users of financial statements to understand the nature and significance of the methods used and judgements applied in determining the transition amounts, an entity shall explain how it determined the measurement of insurance contracts at the transition date. 116 An entity that chooses to disaggregate insurance finance income or expenses between profit or loss and other comprehensive income applies paragraphs C18(b), C19(b), C24(b) and C24(c) to determine the cumulative difference between the insurance finance income or expenses that would have been recognised in profit or loss and the total insurance finance income or expenses at the transition date for the groups of insurance contracts to which the disaggregation applies. For all periods in which amounts determined applying these paragraphs exist, the entity shall disclose a reconciliation from the opening to the closing balance of the cumulative amounts included in other comprehensive income for financial assets measured at fair value through other comprehensive income related to the groups of insurance contracts. The reconciliation shall include, for example, gains or losses recognised in other comprehensive income in the period and gains or losses previously recognised in other comprehensive income in previous periods reclassified in the period to profit or loss. Significant judgements in applying IFRS 17 117 An entity shall disclose the significant judgements and changes in judgements made in applying IFRS 17. Specifically, an entity shall disclose the inputs, assumptions and estimation techniques used, including: (a) the methods used to measure insurance contracts within the scope of IFRS 17 and the processes for estimating the inputs to those methods. Unless impracticable, an entity shall also provide quantitative information about those inputs. (b) any changes in the methods and processes for estimating inputs used to measure contracts, the reason for each change, and the type of contracts affected. (c) to the extent not covered in (a), the approach use