PFRS 17

Insurance
Contracts
Learning Objectives
State the scope and
applicability of PFRS 17
Describe the level of
aggregation and
measurement of insurance
contracts
 Introductio
The n
accounting practices for insurance
contracts have been diverse and often differed
from practices in other sectors. PFRS 17
supersedes PFRS 4 because PFRS 4 basically
allowed insurance companies to retain their
accounting policies under their previous GAAP.
PFRS 17 applies to:
Insurance and reinsurance contracts issued by an
Reinsurance contracts held by an insurer; and
insurer;
Investment contracts with discretionary participation
features issued by an insurer

Contracts that are the same with insurance contract

with fixed fee are accounted under PFRS 15 instead of
The16price
PFRS if: in the contract is not affected by an assessment
of the risk associated with the individual customer;
The customer is compensated through services rather
than cast payment; and
The insurance risk primarily arises from the customer’s
use of services rather than from uncertainty over the cost
of those services.
Insurance Contract
-It is a contract under which one party (the issuer)
accepts significant insurance risk from another party
(the policyholder) by agreeing to compensate the
policyholder if a specified uncertain future event (the
insured event) adversely affects the policyholder
-It is a document representing the agreement
between an insurance company and the insured.
Central to any insurance contract is the insuring
agreement, which specifies the risks that are covered,
Insurance Contract
Policyholder Insurer
It is the party that has a right It is the party that has an
of compensation under an obligation under an insurance
insurance contract if an insured contract to compensate a
event occurs. It is also called policyholder if an insured
Cedant under a reinsurance event occurs. It can also be
contract. the Reinsurer under a
Insured event
reinsurance contract.
An uncertain future event
that is covered by an
insurance contract and
creates insurance risk.
Essential elements in the definition
of an insurance contract
Transfer of Payment from Indemnificati
significant the insured on against
insurance risk
There is a transfer of Generally, the insured lossinsurer agrees to
The
significant insurance pays to a common fund indemnify the insured
risk from the insured from which losses are or other beneficiaries
to the insurer paid however not all against loss or liability
insurance contracts from specified events
have explicit and circumstances.
premiums.
 Significant Insurance
Risk
Insurance Risk – is “risk, other than financial risk,
transferred from the holder of a contract to the
issuer.”
A contract that exposes the issuer to financial risk is not an
insurance contract, unless it also exposes the issuer to
significant insurance risk.
Indemnification against
loss
Generally, indemnification on insurance
contracts is in the form of cash. However, some
insurance contracts require or permit payments
to be made in kind.
Types of insurance
contracts
Direct insurance contract – an insurance contract
where the insurer directly accepts risk and assume
sole obligation to compensate the insured
Reinsurance contract – an insurance contract issued
by one insurer to compensate another insurer for
losses on one or more contracts issued by the cedant
Level of aggregation of
insurance contract
Insurance contracts are combined into portfolios which
Insurance contracts are combined into portfolios which
has similar risk and are managed together. Each
has similar risk and are managed together. Each
portfolios are divided into:
portfolios
A groupare divided into:
of contracts that are onerous at initial
recognition
A group of contracts that at initial recognition have no
significant possibility of becoming onerous
A group of the remaining contract in the
portfolio
Note: PFRS 17 prohibits inclusion of contracts issued more
than a year apart in the same group.
Recognition
Beginning of the coverage period of the group of
contracts
Date when the first payment from a policyholder in
the group becomes due
For a group of onerous contracts, when the group
becomes onerous.

Initial Measurement
Total of fulfillment cash flows

Total of contractual service margin

Fulfillment cash flows
It is the explicit, unbiased and probability of weighted
estimate of the present value of the future cash outflows
minus the present value of future cash inflows that will
arise as the entity fulfills insurance contracts, including a
risk adjustment for non-financial risk. It comprises the
following:
Estimates of future cash flows

Adjustment for time value of money and

financial
Risk risks for non-financial risk.
adjustment
Contractual service margin
It is the unearned profit in a group of insurance
contracts that the entity recognizes as it provides
services in the future.

Subsequent Measurement
 The carrying amount of a group of insurance
contracts at the end of each reporting period is
the sum of:
The liability for remaining coverage

The liability for incurred claims

 Income and expenses are recognized as follows:

Insurance Revenue

Insurance Service Expenses

Insurance Finance Income or Expenses

Premium Allocation
Approach
PFRS 17 allows a simplified measurement of a group of
insurance contracts if the group’s inception:
The entity reasonably expects that the simplification
would result to an approximation of the general model
The coverage period of each contract in the group is
one year or less
Initial Measurement
Liability is initially measured at:
The premiums received at initial
recognition
Minus any insurance acquisition cash flows at that
date unless payments are recognized as an expense
Plus or minus the amount from derecognition at that
date of asset or liability recognized for insurance
acquisition cash flows.
Subsequent Measurement
Carrying amount plus the premiums
received
Minus insurance acquisition cash flows unless the
payments are recognized as an expense
Plus any amounts relating to amortization of
insurance acquisition cash flows recognized as an
expense unless insurance acquisition cash flows are
recognized
Plus as an expense
any adjustment to a financing
component
Minus the amount recognized as insurance revenue
for coverage provided in that period
Minus any investment component paid or
transferred to the liability for incurred claims
Derecognition
An insurance contract is derecognized when:
It is extinguished, when obligation in the contract
expires, or discharged, or cancelled
It is modified and the modification meets any
condition for derecognition

Presentation
The carrying amounts of the groups are presented
separately in the statement of financial position:
Insurance contracts issued that are assets;

Insurance contracts issued that are liabilities;

Reinsurance contract held that are assets; and
Reinsurance contract held that are
Reference: Conceptual Frameworks and Accounting
Standards, 2019 Edition by Zeus Vernon B. Millan
Thanks!