Objective

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The objective of this Standard is to establish principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of SFRS(I) 17. The practices and processes for establishing contracts with customers vary across legal jurisdictions, industries and entities.

The Standard requires an entity to:

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1. Provide relevant information that faithfully represents the Insurance Contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.

2. Consider its substantive rights and obligations, whether they arise from a contract, law or regulation, when applying SFRS(I) 17. A contract is an agreement between two or more parties that creates enforceable rights and obligations. Enforceability of the rights and obligations in a contract is a matter of law. Contracts can be written, oral or implied by an entity’s customary business practices.

3. Disregard terms that have no commercial substance as contractual terms include all terms in a contract, explicit or implied (eg no discernible effect on the economics of the contract). Implied terms in a contract include those imposed by law or regulation.

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Scope

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An entity shall apply SFRS(I) 17 to:

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1. insurance contracts, including reinsurance contracts, it issues;

2. reinsurance contracts it holds; and

3. investment contracts with discretionary participation features it issues, provided the entity also issues insurance contracts; and

4. insurance contracts acquired by the entity in a transfer of insurance contracts or a business combination other than reinsurance contracts held.

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An entity shall not apply SFRS(I) 17 to:

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1. warranties provided by a manufacturer, dealer or retailer in connection with the sale of its goods or services to a customer (see SFRS(I) 15 Revenue from Contracts with Customers).

2. employers’ assets and liabilities from employee benefit plans (see IAS 19 Employee Benefits and SFRS(I) 2 Share-based Payment) and retirement benefit obligations reported by defined benefit retirement plans (see IAS 26 Accounting and Reporting by Retirement Benefit Plans).

3. contractual rights or contractual obligations contingent on the future use of, or the right to use, a non-financial item (for example, some licence fees, royalties, variable and other contingent lease payments and similar items: see SFRS(I) 15, IAS 38 Intangible Assets and SFRS(I) 16 Leases).

4. residual value guarantees provided by a manufacturer, dealer or retailer and a lessee’s residual value guarantees when they are embedded in a lease (see SFRS(I) 15 and SFRS(I) 16).

5. financial guarantee contracts, unless the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts. The issuer shall choose to apply either SFRS(I) 17 or IAS 32 Financial Instruments: Presentation, SFRS(I) 7 Financial Instruments: Disclosures and SFRS(I) 9 Financial Instruments to such financial guarantee contracts. The issuer may make that choice contract by contract, but the choice for each contract is irrevocable.

6. contingent consideration payable or receivable in a business combination (see SFRS(I) 3 Business Combinations).

7. insurance contracts in which the entity is the policyholder, unless those contracts are reinsurance contracts held.

8. credit card contracts, or similar contracts that provide credit or payment arrangements, that meet the definition of an insurance contract if, and only if, the entity does not reflect an assessment of the insurance risk associated with an individual customer in setting the price of the contract with that customer (see SFRS(I) 9 and other applicable SFRS(I) Standards). However, if, and only if, SFRS(I) 9 requires an entity to separate an insurance coverage component that is embedded in such a contract, the entity shall apply SFRS(I) 17 to that component.

 

Some contracts meet the definition of an insurance contract but have as their primary purpose the provision of services for a fixed fee. An entity may choose to apply SFRS(I) 15 instead of SFRS(I) 17 to such contracts that it issues if, and only if, specified conditions are met. The entity may make that choice contract by contract, but the choice for each contract is irrevocable. The conditions are:

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1. the entity does not reflect an assessment of the risk associated with an individual customer in setting the price of the contract with that customer;

2. the contract compensates the customer by providing services, rather than by making cash payments to the customer; and

3. the insurance risk transferred by the contract arises primarily from the customer’s use of services rather than from uncertainty over the cost of those services.

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Some contracts meet the definition of an insurance contract but limit the compensation for insured events to the amount otherwise required to settle the policyholder’s obligation created by the contract (for example, loans with death waivers). An entity shall choose to apply either SFRS(I) 17 or SFRS(I) 9 to such contracts that it issues unless such contracts are excluded from the scope of “An entity shall not apply SFRS(I) 17 to”. The entity shall make that choice for each portfolio of insurance contracts, and the choice for each portfolio is irrevocable.

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