Page 42 - The Insurance Times August 2022

A cursory glance at the current financial statements of life accounts and profit and loss accounts will have to
insurers reveals that the various items of liabilities like, change drastically. Some of the line items have to be
unearned premium, premium deficiency, outstanding claims, replaced with new ones and some have to be added as
claims incurred but not reported (IBNR), claims incurred but IFRS 17 expects an entity to disaggregate the amounts
not enough reported (IBNER) etc are subsumed in a single recognised in the statement(s) of financial performance
amount called Mathematical Reserves / Policy Liabilities / into: insurance service result, insurance finance income
Changes in Valuation of Liabilities. Where as these are or expenses, reinsurance income or expenses and
separately disclosed in financial statements of Indian Non- others.
life insurers. Neither the statements of life insurers nor those
Insurance service result is the net of insurance revenue
of non-life insurers, separately reflect the impact of financial
and insurance service expenses. Specified components
and non financial risks or the profit earned and remaining
of both revenue and expenses have to be separately
to be earned (unearned - CSM).
presented.
Insurance finance Income and Expenses are different
IFRS 17, expects
from Investment income. Discounting of inflows and
1. The Statement of financial position to be presented at
outflows reflecting effect of time value of money gives
portfolio level, and group level details to be provided in
rise to Insurance finance income. Effect of financial risk
notes. Standard also expects presentation of insurance
and change in financial risk also give rise to insurance
/ reinsurance assets and liabilities at portfolio level.
finance income or expenses. These income / expenses,
Current practices of insurers show that though they are at times are apportioned between P&L and OCI.
preparing portfolio-wise statement of financial
performance the statement of financial position at The transactions and items emerging from insurer's non-
entity level, with additional details in schedules insurance contracts will continue to be governed by other
supporting it. These schedules may not have complete standards and regulatory requirements. Presentations of
portfolio level details. Hence some changes are transactions / items from insurance contracts and those
necessary to ensure availability of portfolio level details. from non-insurance contracts have to be synchronised in
the new statements.
2 In view of new grouping provisions, the present
practices with respect to details in the notes might fall
considerably short of the requirements. Hence Conclusions
significant changes to generate the group level details The above paras are only an attempt to present some
might be required. preliminary views on different provisions of IFRS 17 and do
3. IFRS 17 also expects separation of items relating to not claim to be the last word on the topic. The mist around
the provisions will disappear slowly and clarity will emerge
reinsurance contracts issued and reinsurance contracts
held in the primary financial statements. The provisions as the experts throw more and more light on various
also seem to prohibit all kinds of netting (with one provisions and as the insurers move to the new regime of
exception / Option : Income and expense from preparing and presenting their financial statements.
reinsurance contracts held can be netted). Several kinds
of netting are observed in the current practices of Transition to IFRS 17 regime, Is definitely a big challenge
insurers. First, netting of reinsurance amounts from for the insurers particularly for life insurers. The robust IT
similar category amounts emerging from direct (Information Technology) set-ups of the insurers, should
insurance. Second, netting of amounts from reinsurance enable them to take up this challenge confidently. The future
contracts held against reinsurance contracts issued. financial statements of insurers, presenting the performance
Third, netting of reinsurance assets from reinsurance and financial condition of insurers are set to look differently
liabilities. Fourth, netting of reinsurance amounts due with more stakeholder friendly substance.
to and from same parties. In view of this requirement
of IFRS 17, insurers have to develop processes to References :
facilitate gross presentations to avoid the different A closure look at New Insurance Contract Standard (June
degrees of nettings normally observed in the current 21) by EY
presentation of statements of financial position.
Annual Report LIC of India and some Indian general
4. The current disaggregation of items in revenue insurers

42 The Insurance Times, August 2022