1. Insurance IFRS Seminar December 2, 2016 Chris Hancorn Session 32
Disclosures
Insurance IFRS Seminar
December 2, 2016
Chris Hancorn
Session 32

2. Overview IFRS 4 – Insurance Contracts
Insurance contract assets and liabilities
Financial instruments – amended post global financial crisis
Accounting policies, estimation uncertainty, management of capital, segments, pensions etc
Disclosure requirements are generally embedded in each and every standard
IFRS 7 – Financial Instruments, Disclosures
All other standards e.g. IAS 1 Presentation of Financial Statements, IFRS 8, Operating Segments

3. Current IFRS 4

4. IFRS 4 Standard contains two principles:
Principle 1 – identify and explain amounts in financial
statements
Principle 2 – help users understand amount, timing and
uncertainty of cash flows
Disclosure acknowledged to be particularly important because of diversity of practices permitted by IFRS 4

5. Principle 1 - Identifying and explaining amounts in financial statements
Accounting policies
Key amounts
Significant assumptions
Changes in amounts (explanation of movements)
Reinsurance ceded
Disclose gains and losses on buying reinsurance and, if accounting policy is to amortised then also disclose:
− amount of gains and losses amortised
− amounts unamortised at start and end of period

6. Principle 2 - helping users understand future cash flows
Insurer’s objectives in managing risks
Policies for risk mitigation
key terms and conditions – usually fulfilled by discussion of key product groupings
Insurance risk (before and after reinsurance) – sensitivity analysis
Concentrations, loss development tables
Financial risk e.g. market, interest and credit risk
Link to segmental reporting - which under IFRS 8 reflects how the business is managed

7. Assumptions (1) What are the material assumptions?
may not be practical to disclose all
more important to describe process to set assumptions
Objectives – e.g. best estimate, active vs. passive
Sources of data – e.g. market sources vs. use of own experience
Allowance for future trends
Identification of correlations between assumptions

8. Assumptions (2)
Assumptions – quantitative disclosure, where practicable:
Disclose values of assumptions that have a material impact on estimates in balance sheet and income statement
For example:
discount rates
effect of legislative changes such as change to calculation of personal injury awards
overriding estimates such as improvements in annuitant mortality

9. Assumptions (3)
Changes in assumptions and impact of changes having a material impact on assets, liabilities, income and expense
Quantitative or qualitative disclosure permitted
start with change in estimates
identify sources of change
describe the underlying changes in assumptions in terms of e.g.
− length of term to settlement
− severity of claims
− frequency of claims
Disclose effects before and after impact of reinsurance

10. Insurance risk
Objectives, policies and processes for managing insurance risk and methods used to manage those risks
Information about insurance risk (before and after reinsurance) including:
Sensitivity to insurance risk
Qualitative information about sensitivity including terms and conditions of contracts; or
Quantitative analysis that shows effect of changes in risk variables
Concentrations of insurance risk
Claims development

11. Sensitivity analysis
Sensitivity of reported net income and equity for changes in variables that have a material impact, e.g. interest rates, inflation, equity markets, mortality, persistency, frequency and severity.
Impact on net income is for items where change in value is through the income statement
Strengths and limitations of sensitivity analysis should be disclosed
Needs a strong understanding of the entity’s risk profile and its impact on reported results

12. Loss development tables
Presentation of loss development table:
accident year or underwriting year
gross and net of reinsurance
disclose unusual claims developments separately
may need to separate significant categories of reserves e.g. asbestos and environmental pollution liabilities
Needed where significant delays in settlement

13. Financial risk in insurance contracts
Risk exposures and how generated
Objectives, policies and processes for managing insurance risk and methods used to manage those risks
Information about financial risk:
Credit risk (e.g. risk of default by reinsurers)
Liquidity risk (e.g. information about the estimated timing of cash flows)
Market risk (interest rate risk, currency risk and other price risk)
Quantitative sensitivity analysis either:
Individually for each type of market risk; or a single analysis that reflects interdependencies between each type of market risk (e.g. VAR or EV analysis)
Information on exposures to market risk from embedded derivatives in insurance contracts

14. IFRS 4 disclosures - summary
The disclosure requirements are principles based, and the guidance is not prescriptive
Insurer decides the level of detail it needs to give in order to satisfy the disclosure requirements.
Significant planning needed - data gathering requirements significant - must be auditable
Key message is to help users understand the amounts in the financial statements
Senior management input required at an early stage

15. 2013 Exposure Draft

16. Exposure Draft Proposals
ED proposals build on current IFRS 4 disclosures
The disclosures should help users understand the amount, timing and uncertainty of future cash flows. Qualitative and quantitative information should be disclosed about
Amounts recognized in the financial statement;
The significant judgments, and changes in those judgments, when applying the standard; and
The nature and extent of the risks arising from insurance contracts

17. 2013 ED Proposed Disclosures (1)
Aggregate/disaggregate information so useful information is not obscured by large amounts of insignificant detail or aggregation of items with different characteristics. Examples of disaggregation include
- product type
geographical area
reportable segment
Detailed opening to closing
reconciliation, separately for
insurance and reinsurance contracts in an asset and liability position.
Expected cash flows (BE liability), risk margins and CSM
The reconciliations shows premiums, claims, amounts recognized in profit or loss, amounts relating to acquisitions, and anything else “needed to understand the change in contract assets and liabilities”
Unexplained!

18. 2013 ED Proposed Disclosures (2)
Methods, inputs & processes
used in measurement and the effect of changes therein
Amounts where the mirror approach has been applied
Nature and extent
of risks arising and
effect of regulatory
framework
Translation of the risk adjustment into a confidence level
Yield curve used to discount non-par liabilities

19. Thank You