{"id":29842,"date":"2023-02-10T17:52:53","date_gmt":"2023-02-10T16:52:53","guid":{"rendered":"https:\/\/www.alma-lhp.com\/ifrs-17-part-4\/"},"modified":"2023-04-21T19:28:21","modified_gmt":"2023-04-21T17:28:21","slug":"ifrs-17-part-4","status":"publish","type":"page","link":"https:\/\/www.alma-lhp.com\/en\/ifrs-17-part-4\/","title":{"rendered":"IFRS 17 Part 4"},"content":{"rendered":"<p>[et_pb_section fb_built=&#8221;1&#8243; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_row _builder_version=&#8221;4.19.4&#8243; _module_preset=&#8221;default&#8221; custom_margin=&#8221;|auto|-31px|auto||&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.19.4&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_image src=&#8221;https:\/\/www.alma-lhp.com\/wp-content\/uploads\/2023\/01\/IFRS_header.png&#8221; title_text=&#8221;IFRS_header&#8221; show_bottom_space=&#8221;off&#8221; align=&#8221;center&#8221; _builder_version=&#8221;4.19.4&#8243; _module_preset=&#8221;default&#8221; custom_margin=&#8221;||||false|false&#8221; custom_padding=&#8221;||||false|false&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_image][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=&#8221;1&#8243; _builder_version=&#8221;4.19.4&#8243; _module_preset=&#8221;default&#8221; custom_margin=&#8221;||||false|false&#8221; custom_padding=&#8221;||0px||false|false&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_row _builder_version=&#8221;4.19.4&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.19.4&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_text _builder_version=&#8221;4.19.4&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<h1><\/h1>\n<h1>IFRS 17<\/h1>\n<p>&nbsp;<\/p>\n<p>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<p>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<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=&#8221;1&#8243; _builder_version=&#8221;4.19.4&#8243; _module_preset=&#8221;default&#8221; custom_padding=&#8221;0px||||false|false&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_row _builder_version=&#8221;4.19.4&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.19.4&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<h2>Part 4: Simple Example &#8211; General Model<\/h2>\n<p>[\/et_pb_text][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<p style=\"font-weight: 400;\">The accounting for an insurance contract in accordance with IFRS 17 principles is illustrated using a simple example.<\/p>\n<p style=\"font-weight: 400;\">The example refers to an insurance contract with the following characteristics:<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>The contract period is one year and the start date is 1.1. of the calendar year.<\/li>\n<li>The annual premium is 100 and it is paid semi-annually (on 1.1. and on 1.7.)<\/li>\n<li>The expected loss ratio is 60%.<\/li>\n<li>The expected expense ratio is 15%.<\/li>\n<li>The actual damage and costs incurred correspond to those expected.<\/li>\n<li>Investment returns of zero are assumed, which also corresponds to what has occurred.<\/li>\n<li>For simplicity, it is assumed that the risk adjustment is zero and that there is no reinsurance.<\/li>\n<li>It is assumed that there are no taxes &#8211; what a beautiful world!<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row column_structure=&#8221;1_2,1_2&#8243; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; min_height=&#8221;466.4px&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;1_2&#8243; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<p><strong>Presentation of cash flows<\/strong><strong><\/strong><\/p>\n<p>[\/et_pb_text][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<p style=\"font-weight: 400;\">In the upper picture, the <strong>cash flow of<\/strong> the insurance contract is presented.<\/p>\n<p style=\"font-weight: 400;\"><strong>Fulfillment cash flows<\/strong> are described in the image below. It is easy to see that the CSM takes the value 25 under these assumptions.<\/p>\n<p>[\/et_pb_text][\/et_pb_column][et_pb_column type=&#8221;1_2&#8243; _builder_version=&#8221;4.19.4&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_image src=&#8221;https:\/\/www.alma-lhp.com\/wp-content\/uploads\/2023\/02\/cashflow.png&#8221; title_text=&#8221;cash flow&#8221; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; custom_margin=&#8221;0px||0px||true|false&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_image][et_pb_image src=&#8221;https:\/\/www.alma-lhp.com\/wp-content\/uploads\/2023\/02\/fulfillment-example.png&#8221; title_text=&#8221;fulfillment example&#8221; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_image][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<p style=\"font-weight: 400;\"><strong>Day 0 &#8211; Recording on 1.1.<\/strong><\/p>\n<p>[\/et_pb_text][et_pb_image src=&#8221;https:\/\/www.alma-lhp.com\/wp-content\/uploads\/2023\/02\/Bild1-1.png&#8221; title_text=&#8221;Image1&#8243; align=&#8221;center&#8221; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_image][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<ul>\n<li>Future cash flows from insurance liabilities are recognized as an asset if the present value is negative.<\/li>\n<li>There is no impact on the income statement unless <span><\/span>the contract is not profitable.<\/li>\n<\/ul>\n<p style=\"font-weight: 400;\"><span> <\/span><\/p>\n<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<p style=\"font-weight: 400;\"><strong>Day 0 &#8211; The first premium was paid<\/strong><\/p>\n<p>[\/et_pb_text][et_pb_image src=&#8221;https:\/\/www.alma-lhp.com\/wp-content\/uploads\/2023\/02\/Bild2.png&#8221; title_text=&#8221;Image2&#8243; align=&#8221;center&#8221; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_image][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<ul>\n<li>Future cash flows from insurance liabilities are recognized as an asset if the present value is negative. Here it has now become a liability because the first premium has already been collected.<\/li>\n<\/ul>\n<p style=\"font-weight: 400;\"><span> <\/span><\/p>\n<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<p style=\"font-weight: 400;\"><strong>Balance sheet and income statement as of Q2<\/strong><\/p>\n<p>[\/et_pb_text][et_pb_image src=&#8221;https:\/\/www.alma-lhp.com\/wp-content\/uploads\/2023\/02\/Bild3.png&#8221; title_text=&#8221;Image3&#8243; align=&#8221;center&#8221; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_image][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<ul>\n<li>Effective <strong>damages of<\/strong> 30 and <strong>costs of<\/strong> 7.5 were made.<\/li>\n<li>The &#8220;<strong>Insurance Contract Revenues<\/strong>&#8221; consisted of the realization of expected claims and costs from the fulfillment cash flow and the reversal of the CSM.<\/li>\n<li>One can also see very well the two main <strong>sources of profit of<\/strong> this contract on the basis of this presentation:\n<ul>\n<li>Dissolution of the CSM and the change in risk adjustment<\/li>\n<li>As well as the <strong>comparison<\/strong> between the expected damages and costs with those that are currently occurring.<br \/>According to our assumption (expected = current), this source of profit is accordingly zero.<\/li>\n<li>The third source of profit &#8211; from the investment process &#8211; plays no role in this example.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p style=\"font-weight: 400;\"><span> <\/span><\/p>\n<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<p style=\"font-weight: 400;\"><strong>Balance sheet and income statement at year-end<\/strong><\/p>\n<p>[\/et_pb_text][et_pb_image src=&#8221;https:\/\/www.alma-lhp.com\/wp-content\/uploads\/2023\/02\/Bild4.png&#8221; title_text=&#8221;Image4&#8243; align=&#8221;center&#8221; _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;][\/et_pb_image][et_pb_text _builder_version=&#8221;4.19.5&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221;]<\/p>\n<ul>\n<li>Since it was assumed that the real losses and costs develop as expected, there is actually a gain of 25, which was also recognized as a CSM liability at the beginning.<\/li>\n<\/ul>\n<p style=\"font-weight: 400;\"><span> <\/span><\/p>\n<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>IFRS 17 &nbsp; 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 [&hellip;]<\/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-29842","page","type-page","status-publish","hentry"],"_links":{"self":[{"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/pages\/29842","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=29842"}],"version-history":[{"count":2,"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/pages\/29842\/revisions"}],"predecessor-version":[{"id":29846,"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/pages\/29842\/revisions\/29846"}],"wp:attachment":[{"href":"https:\/\/www.alma-lhp.com\/en\/wp-json\/wp\/v2\/media?parent=29842"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}