Insurance IFRS Seminar December 2, 2016 Bill Horbatt Session 33 Transition Insurance IFRS Seminar December 2, 2016 Bill Horbatt Session 33

Transition time line 19XX 20YY 20ZZ Contract Initial Recognition Earliest Period Presented Current Period Presented

C1 Effective date Effective approximately 3 years from the final standard Early application is permitted.

Opening retained earnings Opening accumulated OCI C2 Change in accounting Application of this Standard is a change in accounting policy. IAS 8 applies Recognise cumulative effect at beginning of earliest period presented by adjusting: Opening retained earnings Opening accumulated OCI

C3 Opening adjustments At the beginning of the earliest period presented, an entity shall, with a corresponding adjustment to retained earnings, derecognise: (a) any existing DAC. (b) any intangible assets from previous business combinations that do not meet the definition of an intangible asset (VOBA)

Opening adjustments, Cont. Recognize (separate purchase accounting): (c) any assets or liabilities acquired in a business combination not previously recognised because they had been subsumed in amounts recognised in accordance with IFRS 4 and are derecognised in accordance with (a) or (b). Measure such assets or liabilities based on relevant Standards required at the date of the business combination.

Opening adjustments, Cont (d) measure each portfolio of insurance contracts as sum of: (i) the fulfilment cash flows (BEL+RA); and (ii) a contractual service margin

Opening adjustments, Cont. (e) recognise, in a separate component of equity, Cumulative effect of difference between expected present values of cash flows at beginning of earliest period presented, discounted using: (i) current discount rates at earliest period; and (ii) the discount rates applied when portfolios were initially recognized (OCI)

Balance sheet restatement Before After Cash & Invested 90 DAC 10 Total Assets 100 Total Reserve 95 80 OCI Shareholder Equity 5 Total Liabilities

C4 Retrospective application Apply Standard retrospectively in accordance with IAS 8 to measure contracts in force at the beginning of the earliest period presented (3 balance sheets / 2 income statements?).

C5 Practicality IAS 8 specifies when it would be impracticable to apply this Standard to measure an insurance contract retrospectively. In those situations, an entity shall, at the beginning of the earliest period presented:

(a) measure the insurance contract as the sum of: Practicality, Cont. (a) measure the insurance contract as the sum of: (i) fulfilment cash flows (BEL+RA); and (ii) estimate of remaining contractual service margin based on expectations at contract initial recognition.

Practicality, Cont. (b) for the purpose of measuring revenue after the earliest period presented, estimate the liability for remaining coverage, excluding: (i) any losses at initial recognition; and (ii) any subsequent changes in the estimates between initial recognition date and earliest period presented that were immediately recognised in P&L. {ie just use the assumptions at first presentation date}

Practicality, Cont. (c) for the purpose of measuring the interest expense recognised in P&L, determine the discount rates applied when contracts initially recognised.

Need not undertake exhaustive efforts to obtain objective information C6 No exhaustive effort In applying C5: Need not undertake exhaustive efforts to obtain objective information Take into account all objective information that is reasonably available and:

(a) estimate expected cash flows at date of initial recognition as Estimating cash flows (a) estimate expected cash flows at date of initial recognition as expected cash flows at the beginning of the earliest period presented, adjusted by cash flows known to have occurred between date of initial recognition and beginning of earliest period presented;

Estimating risk adjustment (b) estimate risk adjustment at date of initial recognition as risk adjustment that is measured at beginning of earliest period presented. Risk adjustment does not reflect changes in risk between initial recognition and earliest period presented.

Estimating discount rates (c) estimate discount rates that applied at date of initial recognition using an observable yield curve that, for at least three years before the date of transition, approximates the yield curve estimated, if such an observable yield curve exists;

Est. Discount Rates, Cont. (d) if observable yield curve does not exist, estimate discount rates that applied at date of initial recognition by determining an average spread between an observable yield curve and yield curve estimated, and applying that spread to that observable yield curve. That spread shall be an average over at least three years before the date of transition

C7 Retroactive disclosure An entity applying this Standard for periods beginning before Standard effective date shall disclose that fact.

C8 Disclosure For each period presented for which there are contracts that were measured in accordance with this standard, an entity shall disclose, in addition to the disclosures required by IAS 8:

Disclosure, Cont. (a) the earliest date of initial recognition of the portfolios for which the entity applied this Standard retrospectively; and (b) the disclosures required separately for portfolios to which this standard apply. At a minimum, an entity shall provide those disclosures for:

(ii) the discount rates. Disclosure, Cont. (i) the contractual service margin, including a description of the extent to which the entity used information that is not objective in determining that margin; and (ii) the discount rates.

C9 Claim development An entity need not disclose unpublished information about claims development that occurred earlier than five years before the end of the first financial year in which it first applies this Standard. However, if an entity does not disclose that information, it shall disclose that fact.

C10 Line item disclosure Not required to disclose, for current period or for each prior period presented, the adjustment for each financial statement line item that is affected, as IAS 8 would otherwise require

C11 Redesignation of financial asset At the beginning of the earliest period presented, when an entity first applies this Standard, it is permitted, but not required: (a) to redesignate a financial asset as measured at fair value through P&L if that financial asset meets the condition in IFRS 9, as applicable, at the date when the entity first applies this Standard.

(b) if the entity has previously applied IFRS 9: Redesignation, Cont. (b) if the entity has previously applied IFRS 9: (i) to designate an investment in an equity instrument as at fair value through other comprehensive income in accordance with IFRS 9; or (ii) to revoke a previous designation of an investment in an equity instrument as at fair value through other comprehensive income in accordance with IFRS 9

C12 Revocation of Designation An entity is required to revoke previous designations of financial assets as measured at fair value through P&L if initial application of this Standard eliminates the accounting mismatch that led to that previous designation

C13 Withdrawal of other IFRS This Standard supersedes IFRS 4, issued in 2004.

Thank You