1. Insurance IFRS Seminar December 2, 2016 Darryl Wagner Session 23
Presentation
Insurance IFRS Seminar
December 2, 2016
Darryl Wagner
Session 23

2. Statement of Financial Position Statement of Comprehensive Income
Agenda
Introduction
Statement of Financial Position
Statement of Comprehensive Income
Key Issues

3. Introduction
The margin presentation model in the 2010 ED was developed from two key conclusions made by the Board:
Presentation of an insurer’s profit or loss is better expressed from the building-blocks model
A margin approach is the most suited presentation to display the sources of profit from the building-blocks model
However, based on feedback received, including industry outcry for volume information, the 2013 ED now requires presentation of insurance revenue – a metric derived from the building blocks model.

4. Statement of Financial Position
Items proposed in the ED
An insurer shall present separately, as a single line item, the carrying amount of the portfolios of insurance contracts that are assets from insurance contract liabilities
An insurer shall not offset reinsurance assets or liabilities against direct insurance contract assets or liabilities
For unit-linked contracts, the pool of assets underlying these contracts shall be presented as a single line item and not commingled with the insurer’s other assets
The portion of the liabilities linked to the pool of assets shall be presented as a single line item and not commingled with the insurer’s other insurance contract liabilities

5. Statement of financial position
Example statements of financial position
Insurance Contracts
Statement of financial position
Current U.S. GAAP
Assets
Investments X
Cash
Other assets
Premium Receivables
DAC
Unearned Premium Reserve — (short duration)
Liabilities
Policyholder and claim reserves
Debt
Other liabilities

6. Statement of financial position
Exposure Draft
Assets
Cash X
Investments
Unconditional premium receivable
Insurance contract asset
Reinsurance contract asset
Liabilities
Liability for remaining coverage (PAA/BBA)
Liability for incurred claims (PAA/BBA)
While separate presentation of the PAA and BBA assets and liabilities is not required under the IASB ED, the separate components will be contained within the total insurance contract asset and liability.

7. Statement of Comprehensive Income
Other items the ED proposes
An insurer should present premiums, claims, benefits, and the gross underwriting margin in the SCI.
Insurers should exclude from the aggregate premium presented in the SCI income the present value of the amounts the insurer is obligated to pay to policyholders or their beneficiaries regardless of whether an insured event occurs, determined consistently with measurement of the overall insurance contract liability.
It should be required to present in OCI changes in the insurance liability arising from changes in the discount rate and to present in profit or loss interest expense using the discount rate locked in at inception of the insurance contract.
Reinsurers and cedants shall present any gains or losses on commutations as an adjustment to claims or benefits and should not gross up the premiums, claims, or benefits in recognizing the transaction on the SCI.
Change since the 2013 ED:
The IASB tentatively decided that
an entity should be prohibited from presenting premium information in the statement of comprehensive income if that information is not consistent with commonly understood notions of revenue.
an entity should choose to present the effect of changes in discount rates in profit and loss or in other comprehensive income as its accounting policy.

8. Example statements of comprehensive income
Statement of comprehensive income
Current U.S. GAAP
Revenues
Earned premium X
Investment product type fees
Net investment gains/losses
Expenses
Policyholder benefits and claims
Interest credited to policyholder
Balances
Other expenses

9. Statement of comprehensive income
Exposure Draft
Insurance contract revenue X
Claims and benefits incurred
(X)
Amortization of acquisition costs
Changes in estimates for future claims
Unwind of previous changes in estimates
Total Underwriting Margin
Investment income
Interest accreted on insurance contracts
Profit
Components of other comprehensive income
Total comprehensive income
This presentation would be similar for both the BBA and PAA.
However, complexities may arise in applying such presentation to a liability measurement model, most notably portfolios in the BBA.

10. Presentation of Insurance Revenue
Linking liability movements to revenue and expense
Change since the 2013 ED: IASB tentatively decided that differences in the current and previous estimates of the Risk Adjustment that relate to coverage and other services for future periods should adjust the CSM subject to the condition that the CSM should not be negative.

11. Presentation of Insurance Revenue
Linking liability movements to revenue and expense
Revenue is formula driven based on
release of contractual service margin
period expected cash outflows
acquisition cost period allocation
risk adjustment change
The BBA outflows are split between those relating to future coverage and services and those beyond the expiry of that period (settlement cash flows).
Outflows experience variances for the first sub-set are grossed up: expected cash flows are taken to the insurance revenue line whilst actual cash outflows (benefits and expenses) are reported as insurance expenses.
Net experience variances on inflows (premiums) that relate to future coverage are added to the revenue together in line with the changes in CSM recognized through earnings and the changes in the risk adjustment related to future coverage net cash flows.
Amounts derived from the CSM are grossed up for direct acquisition costs which are presented as an expense using an amortization pattern that mirrors the release of the CSM through earnings.

12. Presentation of Insurance Revenue
Linking liability movements to revenue and expense

13. Key issues and concerns
Does the revenue metric address industry concerns?
What type of volume information are investors looking for – sales or present value of future premiums?
How to display premium is subject to debate
Earned premium vs. premiums written approach
Difficult to measure earned premium for life insurers
Would an expanded summarized margin with volume information satisfy industry concerns?

14. Thank You