1. Product Classification Workshop
Insurance IFRS Seminar
December 1, 2016
Michael Lockerman Product Classification workshop Session 15

2. Significant Insurance Risk?
Date
Significant Insurance Risk?
a) Identify the insured event
b) Establish that the insured event affects the insured adversely
Scenario 1
c) Identify a scenario in which
the insured event occurs
d) Test that that scenario has
commercial substance
e) Determine the net cash between
the insurer and the policyholder
Scenario 2
f) Identify a scenario in which
the insured even does not happen
g) Test that that scenario also
has commercial substance
h) Determine the benefit under
that scenario
i) Compare (e) and (h) – Consider time value of money
j) Establish if (e) is significantly more than (h).
Yes No
Insurance contract
Not an insurance
contract

3. Policyholder still alive when annuity begins
IFRS 4 – Insurance Contracts Example: Deferred Annuity – Policyholder can receive a life-contingent annuity at rates guaranteed at inception (IG 2.1.6)
Date
Policyholder still alive when annuity begins
b) Will it adversely affect the insured?
Needs money for retirement period
Identify the insured event
c) PH survives long after the annuity begins, say 95
f) PH dies earlier, say 70
Scenario 1
Scenario 2
g) Commercial substance?
Yes
d) Commercial substance?
Yes
e) What is payable?
h) What is paid under (f)?
Annuity checks until 95
Annuity checks until 70
Annuity checks to age 95 > Annuity checks to 70
i) Compare (e) and (h)
Yes
j) Establish if (e) is significantly more than (h).
Insurance contract

4. Products to classify under IFRS
5 year return-of-premium (“ROP”) term insurance for a:
10 year-old
80 year-old
10 year endowment with death benefit equal to:
the maturity benefit
the present value of the maturity benefit based on market rates
the present value of the maturity benefit based on rates determined at the inception of the contract
Deferred annuity with annuitization rates:
Guaranteed at issue
Not guaranteed at issue

5. Questions For each example, follow the “10-step” approach.
What do you define as “significant”?
Is there any missing information?
What information might change the classification?

6. Thank You