Section 4600: Insurance Contracts
International Financial Reporting Standard 4
Insurance Contracts
1. First Version of IFRS 4
"Insurance Contracts" issued in March 2004
2. Revisions
Revised in December 2005
Amended by IFRS 3 in January 2008
3. Insurance Contract
In an insurance contact,
--> the insurer accepts insurance risk from the policyholder
--> the insurer pays the policyholder
if the insured event affects the policyholder, adversely
4. Deposit Component
If an insurance contract has both (1) and (2),
--> unbundling rules apply
(1) an insurance component
(2) a deposit component
5. Unbundling Rules
(Q1) can an insurer measure the deposit component separately?
(Q2) do the insurer's accounting policies require
to recognise all obligations and rights from the deposit component?
(1) if answer to (Q1)=no
--> unbundling is prohibited
(2) if answer to (Q1)=yes, answer to (Q2)=yes,
--> unbundling is permitted, but not required
(3) if answer to (Q1)=yes, answer to (Q2)=no,
--> unbundling is required
6. Unbundling an Insurance Contract
Insurer applies the following IFRS:
IFRS 4 --> to the insurance component
IAS 39 --> to the deposit component
7. Liability Adequacy Test
At the end of each reporting period,
--> insurer assesses whether insurance liabilities are adequate
to cover the estimated future cash flows
If the carrying amount of insurance liabilities is inadequate
--> recognise the (entire) deficiency in profit or loss
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