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

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

3. 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.”

4. 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.

5. 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”

6. 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

7. 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)

8. 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

9. 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

10. Thank You