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

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

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

4. 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

5. 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)

6. 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.

7. 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

8. 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)

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

10. 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?).

11. 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:

12. (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.

13. 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}

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

15. 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:

16. (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;

17. 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.

18. 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;

19. 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

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

21. 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:

22. 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:

23. (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.

24. 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.

25. 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

26. 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.

27. (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

28. 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

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

30. Thank You