Concepts of IFRS 4 – Insurance Contracts & Implementation ...

IFRS 4 Phase II
IFRS 4 Phase II model- How does it work
Diagram 1:
Profitable
contract
Shortduration
pre-claims
liability
(net of
incremental
acquisition
costs)
Nil
Diagram 2:
Non profitable
contract
Shortduration
pre-claims
liability
(net of
incremental
acquisition
costs)
Nil
Liability
adequacy test
PV of
future
cash
inflows
PV of
future
cash
inflows
PV of fulfilment cash flows
PV of
future
cash
outflow
Risk
adjustment
PV of fulfilment cash flows
PV of
future
cash
outflow
Risk
adjustment
Residual
margin
Loss on
inception
FASB:
Composite
margin
Cash inflows
o
o
Premiums, including initial
premiums and future premiums
within contract boundary
Potential recoveries (e.g., salvage
and subrogation)
Cash outflows
o
o
o
o
o
o
o
Payments to (or on behalf of)
policyholders, including payments
in kind and Incurred but not
reported (IBNR)
Claim handling costs
Cash flows that will result from
options and guarantees embedded
in the contract
Payments to policyholders as a
result of a contractual participation
term
Transaction-based taxes and
levies (VAT, premium tax)
Incremental costs of selling,
underwriting, and initiating
successful insurance contracts
Policy administration and
maintenance costs
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