{"id":29828,"date":"2023-03-08T13:59:26","date_gmt":"2023-03-08T12:59:26","guid":{"rendered":"https:\/\/www.alma-lhp.com\/ifrs-17-part-7\/"},"modified":"2023-04-21T19:28:21","modified_gmt":"2023-04-21T17:28:21","slug":"ifrs-17-part-7","status":"publish","type":"page","link":"https:\/\/www.alma-lhp.com\/en\/ifrs-17-part-7\/","title":{"rendered":"IFRS 17 Part 7"},"content":{"rendered":"

[et_pb_section fb_built=”1″ _builder_version=”4.19.5″ _module_preset=”default” global_colors_info=”{}”][et_pb_row _builder_version=”4.19.4″ _module_preset=”default” custom_margin=”|auto|-31px|auto||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.19.4″ _module_preset=”default” global_colors_info=”{}”][et_pb_image src=”https:\/\/www.alma-lhp.com\/wp-content\/uploads\/2023\/01\/IFRS_header.png” title_text=”IFRS_header” show_bottom_space=”off” align=”center” _builder_version=”4.19.4″ _module_preset=”default” custom_margin=”||||false|false” custom_padding=”||||false|false” global_colors_info=”{}”][\/et_pb_image][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.19.4″ _module_preset=”default” custom_margin=”||||false|false” custom_padding=”||0px||false|false” global_colors_info=”{}”][et_pb_row _builder_version=”4.19.4″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.19.4″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.20.0″ _module_preset=”default” global_colors_info=”{}”]<\/p>\n

<\/h1>\n

IFRS 17<\/h1>\n

 <\/p>\n

2023 is a very important year for the insurance industry: The complex set of rules IFRS 17 will come into force on January 1, 2023, replacing the interim standard IFRS 4 Phase I, which has been in force since 2005. The new standard governs the principles of identification, recognition, measurement, presentation and disclosures for insurance contracts.<\/p>\n

Alma will support the implementation of IFRS 17 in the insurance industry. Therefore, Alma will publish short and easy-to-understand articles on IFRS 17 from time to time.<\/p>\n

[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.19.4″ _module_preset=”default” custom_padding=”0px||||false|false” global_colors_info=”{}”][et_pb_row _builder_version=”4.19.4″ _module_preset=”default” min_height=”65.9px” custom_margin=”|auto|-25px|auto||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.19.4″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.20.0″ _module_preset=”default” global_colors_info=”{}”]<\/p>\n

Part 7: Contract Boundary (CB)<\/h2>\n

[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.20.0″ _module_preset=”default” custom_margin=”|auto|-30px|auto||” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.20.0″ _module_preset=”default” global_colors_info=”{}”][et_pb_text _builder_version=”4.20.0″ _module_preset=”default” min_height=”27px” global_colors_info=”{}”]<\/p>\n

The “contract boundaries” (CB) play a central role for the valuation, as do the “units of accounts”<\/a>. This is because only the cash flows that are within the CB are to be taken into account for the valuation.<\/p>\n

[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.19.5″ _module_preset=”default” global_colors_info=”{}”][et_pb_column type=”4_4″ _builder_version=”4.19.5″ _module_preset=”default” global_colors_info=”{}”][et_pb_image src=”https:\/\/www.alma-lhp.com\/wp-content\/uploads\/2023\/03\/CB-1.png” title_text=”CB 1″ align=”center” _builder_version=”4.20.0″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text _builder_version=”4.20.0″ _module_preset=”default” global_colors_info=”{}”]<\/p>\n

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For example, consider an insurance contract that has a policy term of one year, an expected combined ratio of 80%, and includes a renewal option. Let us also assume for simplicity that each year 1\/10 of the initial stock makes use of the renewal and that the risk adjustment and interest are zero. In this case, the initial CSM (contractual service margin) results in<\/p>\n

    \n
  • \n
      \n
    • of 20% of the premium, if you do not take into account the renewals and<\/li>\n
    • a proud CSM of 110% of the premium when renewals are factored in.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n

      <\/span><\/p>\n<\/div>\n

      \n

      Thus, each company is required to determine the CB for their groups, the regulations for this are formulated as follows:<\/p>\n

      Cash flows are<\/strong> within the scope of an insurance contract if they arise from substantial rights and obligations<\/strong> that exist during the reporting period in which the entity<\/strong> can compel the policyholder to pay premiums<\/strong> or<\/strong> in which the entity has a substantial obligation to provide insurance contractual services<\/strong> to the policyholder<\/strong>.<\/p>\n

      A substantial obligation to provide insurance contract services ends<\/strong> when:<\/p>\n

      (a) the entity has the practical ability to reassess the risks of the particular policyholder and, as a result, establish a price or level of benefits that adequately reflects those risks; or<\/strong><\/p>\n

      (b) both of<\/strong> the following criteria are met<\/p>\n

      (i) the entity has the practical ability to reassess the risks of the portfolio of insurance contracts that includes the contract and, as a result, can set a price or benefit level that fully reflects the risk of that portfolio; and<\/p>\n

      (ii) the pricing of premiums up to the point at which risks are reassessed does not take into account risks relating to periods after the date of reassessment.<\/p>\n

      An entity shall not recognize amounts relating to expected premiums or expected claims outside the limits of the insurance contract as either a liability or an asset. Such amounts relate to future insurance contracts.<\/p>\n

      A clearer way to determine the CB is to use the following presentation:<\/p>\n<\/div>\n<\/div>\n

      [\/et_pb_text][et_pb_image src=”https:\/\/www.alma-lhp.com\/wp-content\/uploads\/2023\/03\/CB-2a.png” title_text=”CB 2a” align=”center” _builder_version=”4.20.2″ _module_preset=”default” module_alignment=”center” hover_enabled=”0″ global_colors_info=”{}” sticky_enabled=”0″][\/et_pb_image][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":"

      IFRS 17   2023 is a very important year for the insurance industry: The complex set of rules IFRS 17 will come into force on January 1, 2023, replacing the interim standard IFRS 4 Phase I, which has been in force since 2005. The new standard governs the principles of identification, recognition, measurement, presentation and […]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"class_list":["post-29828","page","type-page","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/pages\/29828","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/comments?post=29828"}],"version-history":[{"count":11,"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/pages\/29828\/revisions"}],"predecessor-version":[{"id":29850,"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/pages\/29828\/revisions\/29850"}],"wp:attachment":[{"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/media?parent=29828"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}