Current IFRS 4 Reporting Insurance IFRS Seminar December 1, 2016 Michael Lockerman Session 5

Topics Product Classification – Briefly as this hasn’t really changed Discretionary Participation Features definition Reserving Basis

Insurance contract definition A single definition of insurance contracts “a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.” “A reinsurance contract is a type of insurance contract.”

Discretionary Participation Features A contractual right to receive, as a supplement to guaranteed benefits, additional benefits: that are likely to be a significant portion of the total contractual benefits; whose amount or timing is contractually at the discretion of the issuer; and that are contractually based on: the performance of a specified pool of contracts or a specified type of contract; realised and/or unrealised investment returns on a specified pool of assets held by the issuer; or the profit or loss of the company, fund or other entity that issues the contract.

Reserving Basis – policy reserves Use your local accounting basis Many just continued with local GAAP (with adjustments) Some multi-nationals applied consistent basis to all entities while others differ by location May include shadow accounting Not required to eliminate excessive prudence but may not introduce it Other changes allowed if “more relevant” An insurer is permitted, but not required, to change its accounting policies to reflect current assumptions Can select only some liabilities without applying to similar liabilities Can select specific assumptions without applying it to all assumptions However, once selected, cannot “deselect”

Reserving Basis – other reserves Embedded derivatives Need to be unbundled if not also insurance Exception for cash surrender value “put” options Unbundling of deposit elements Required if accounting policy does not already require it be measured Prohibited if it cannot be measured separately Permitted otherwise Prohibit provisions for nonexistent claims are removed No catastrophe and equalization provisions

Reserving Basis – DPF Maintain existing policy or make it more relevant and/or reliable DFP Can be either implicitly or explicatively recognized They need to be shown as either equity or a liability (but not some “intermediate” category)

Reserving Basis - LAT A catch-all for reserving All options and guarantees need to be included based on “current” estimates Any shortfall must go to the P&L If current accounting policy does not satisfy the above, then adopt (the more onerous) IAS 37 guidance

Reserving Basis - reinsurance Impairment for Reinsurance Assets only if: there is objective evidence (trigger event) that cedant may not receive all contractual amounts that event can be reliably measured Otherwise, insurers may not impair reinsurance assets Although more relevant / reliable argument also can be used

Thank You