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

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IFRS 4 Phase I Liability Adequacy Test An insurer shall assess at the end of each reporting period whether its recognised insurance liabilities are adequate, using current estimates of future cash flows under its insurance contracts. IFRS 4 requires to perform liability adequacy test by the Actuary The minimum requirements of test are the following: - The test considers current estimates of all contractual cash flows, and of related cash flows such as claims handling costs as well as cash flows resulting from embedded options and guarantees. - if the test shows that the liability is inadequate, the entire deficiency must be recognised in profit or loss The liability measurement principles are pretty stringent in India as negative reserves are not considered in valuation of policy liabilities Copyright Birla Sun Life Insurance Company Limited 2008
Accounting policy IFRS 4 Phase I Investment Contract; Deposit components to the extent invested in various fund/s are to be accounted as liability directly into the Balance sheet. Benefits and claims paid on investment contracts directly need to be adjusted against the liability. Deferred acquisition costs (DAC) needs to be deferred over contract period Deferred income (DOF) needs to be deferred and recognised as revenue over the contract period. • IFRS 4 permits to continue with current accounting policies except; Measuring insurance liability on undiscounted basis Measuring contractual rights to future investment management fees at an amount that exceeds its fair value – using non uniform accounting policies for the insurance liabilities of subsidiaries Catastrophe and equalisation provisions • Deposit accounting will reduce the top line of company • DAC and DOF accounting will reduce volatility in the bottom line by equalising the acquisition costs and Income over the contract period • Actuarial models & IT systems need to be upgraded to capture and track deposit component, DAC & DOF separately Copyright Birla Sun Life Insurance Company Limited 2008
Page 1 and 2: Concepts of IFRS 4 - Insurance Cont
Page 3 and 4: IFRS 4 : Insurance contracts - Phas
Page 5 and 6: Product Classification flowchart IF
Page 7: IFRS 4 Phase I Unbundling & Embedde
Page 11 and 12: IFRS 4 Phase I Impact : Balance she
Page 13 and 14: IFRS 4 Insurance contracts - Phase
Page 15 and 16: IFRS 4 Phase II Project timelines P
Page 17 and 18: IFRS 4 Phase II IFRS 4 Phase II mod
Page 19 and 20: Accounting and Disclosure Gaps Iden
Page 21 and 22: IFRS 4 Phase II:-More than accounti
Page 23 and 24: Business Implications Insurers
Page 25: Questions or Comments E mail id: ma

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