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 January 1, 2021 (tentative)
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. Derecognise: (a) any existing DAC.
C3 Opening adjustments
Derecognise:
(a) any existing DAC.
(b) any intangible assets from previous business combinations that do not meet the definition of an intangible asset (VOBA)
Recognize:
(c) any assets or liabilities acquired in a business combination not previously recognised. Measure such assets or liabilities based on relevant Standards required at the date of the business combination

6. 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 (CSM)
(e) (Optional): Recognize 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)

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

8. 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?).

9. It is always practical to calculate the BEL and RA
C5 Practicality
It is always practical to calculate the BEL and RA
CSM & Original discount rate:
(a) Estimate of remaining CSM based on expectations at contract initial recognition.
When it would be impracticable 2 Options
(b) Practical expedients
(c)If (a) impractical, then Fair Value approach

10. 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:

11. Practical Expedients Fair Value option
Examples of techniques to calculate CSM at adoption
Extrapolate discount rate from alternative indices
Roll back a CSM at adoption to issue date using actual previous cash flows
Fair Value option
Use discount rate at adoption
CSM equals difference between fair value of liability (FVL) and BEL + RA

12. 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.

13. 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

14. 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.

15. (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

16. 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

17. Thank You