IFRS 4 Insurance Contracts Summary
• Issued in March 2004
• Recent amendment: by IFRS 3 revised in January 2008
What is an insurance contract?
• a contract
• the insurer accepts insurance risk
• from the policyholder
• the insurer pays the policyholder
• if the insured event affects the policyholder (adversely)
Deposit component if an insurance contract has both an insurance component and a deposit component,
Unbundling rules
(Q1) can an insurer measure the deposit component separately?
(Q2) do the insurer's accounting policies require to recognize all obligations and rights from the deposit component?
(1) if the answer to (Q1)=no, unbundling is prohibited
(2) if the answer to (Q1)=yes,
and the answer to (Q2)=yes, unbundling is permitted, but not required
(3) if the answer to (Q1)=yes,
and the answer to (Q2)=no, unbundling is required
Unbundling an insurance contract insurer applies
(1) IFRS 4 to the insurance component
(2) IAS 39 to the deposit component
Liability adequacy test at the end of each reporting period, insurer assesses whether insurance liabilities are adequate(to cover the estimated future cash flows)
If the carrying amount of insurance liabilities is inadequate, recognise the (entire) deficiency in profit or loss
IFRS 4 Disclosures
The IFRS requires disclosure of information that helps users understand the amounts in the insurer's financial statements that arise from insurance contracts:
• Accounting policies for insurance contracts and related assets, liabilities, income, and expense.
• The recognised assets, liabilities, income, expense, and cash flows arising from insurance contracts.
• If the insurer is a cedant, certain additional disclosures are required.
• Information about the assumptions that have the greatest effect on the measurement of assets, liabilities, income, and expense including, if practicable, quantified disclosure of those assumptions.
• The effect of changes in assumptions.
• Reconciliations of changes in insurance liabilities, reinsurance assets, and, if any, related deferred acquisition costs.
• Information that helps users understand the amount, timing and uncertainty of future cash flows from insurance contracts.
• Risk management objectives and policies.
• Those terms and conditions of insurance contracts that have a material effect on the amount, timing, and uncertainty of the insurer's future cash flows.
• Information about insurance risk (both before and after risk mitigation by reinsurance), including information about:
• The sensitivity of profit or loss and equity to changes in variables that have a material effect on them.
• Concentrations of insurance risk.
• Actual claims compared with previous estimates.
• The information about interest rate risk and credit risk that IAS 32 would require if the insurance contracts were within the scope of IAS 32.
• Information about exposures to interest rate risk or market risk under embedded derivatives contained in a host insurance contract if the insurer is not required to, and does not, measure the embedded derivatives at fair value.
