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IFRS 17 Liabilities: Generally higher due to inclusion of CSM on profitable contracts.
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Day-One Profits:
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Prudential Reporting: Recognizes profit immediately in own funds.
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IFRS 17: Defers profit recognition over the coverage period via CSM.
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Default Model for most insurance contracts.
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Discounting Required when it materially affects provisions or as mandated by legislation.
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Need to disclose liability before discounting, and the assumptions used
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Consider for discount rate:
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Reflects the assets backing the liabilities
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Excluded assets - premium debtors
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Taxation - tax deductible
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Variability
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Performance Timing: Affects the timing of profit emergence, not actual performance.
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Includes: All cashflows within the contract boundary.
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Contract Boundary
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Period where the insurer is obligated to provide coverage.
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Ends when the insurer can reassess risk and reprice.
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Differences from Prudential Reporting:
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Includes acquisition and maintenance expenses.
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Different discount rates and contract boundaries.
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Includes tax-related flows.
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Requires unbundling certain contracts.
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Compensation for uncertainty in amount and timing of cashflows.
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Similar to: Risk margin in prudential reporting.
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Methodology: Not prescribed; confidence level must be disclosed.
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Release: Recognized in profit as risk expires over time.
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Represents unearned future profits on a group of contracts.
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Initial Recognition:
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For profitable contracts: CSM = -(BEL + RA) to make initial liability zero.
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For onerous contracts: CSM = 0; losses recognized immediately.
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Release Pattern
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Based on coverage units (e.g., benefit-weighted policies)
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Recognized in profit over the coverage period.
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Adjusts cashflows to present value using appropriate discount rates.
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Simplified Model for short-duration contracts.
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Eligibility Criteria
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Contracts where: PAA measurement ≈ GMM measurement (not materially different)
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And Coverage period ≤ one year.
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Key Features
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Similar to: Unearned Premium Reserve (UPR).
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No Explicit: CSM or RA (implicit in the unearned premium).
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Onerous Contracts: Loss component recognized at inception, similar to an unexpired risk reserve
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