IFRS 17 provides guidance on presentation of financial statements, it specifies the line items which require to present in the face of the Financial position (Balance sheet).
Insurance companies currently presenting their financial position in a very detailed level base on voluntarily selections. This resulted in presenting the balances related to same contract as various line items in the balance sheet. Receivable from insurance contracts, Deferred acquisition assets, Policy loans and insurance contract liabilities which pertain to the same insurance contract are presented separately.
IFRS 17 requires to present only one line for balances related to insurance contracts (Gross), and one line item for all the balances representing reinsurance arrangements.
Is IFRS 17 making things complicated? No, it is making things more comparable and increasing transparency. Some Insurers may only recognize premiums due in the current month that were not yet received, while other Insurers may reflect premiums due in the next 12 months in premiums receivable, then receivable balance recorded in balance sheet is not comparable as per current practice. IFRS 17 will consider all cash flows including that are not due when measuring insurance contract liabilities and net impact will be presented as one line in Financial statements, this will lead to improve the comparability.
IFRS 17 simplifies the current presentation and balances related to different line items of the same portfolio of contracts will be combined together. If the net value of the cash flows is an asset, it will be shown as an asset, “Insurance contract assets” and if the value is in liability position, it will be presented as a liability, “Insurance contract liabilities”.
The same portfolio of contracts may move between assets and liabilities over the time based on net cash flow position of the respective contracts.
Teran Prasanna ACA (ICAEW-UK), FCA, CPA, Bsc (Accounting)