Contract Boundary Solvency Ii Ifrs 17

FIT members seemed to agree that insurers should only consider the possibility of reassessing and reassessing policyholders` risks when setting contract limits. They found that policyholder risks are risks that are transferred from the policyholder to the insurer. IASB staff noted that these may include insurance and financial risks, but exclude risks that are not transferred from the policyholder to the insurer under such contracts – for .B. Establishing contract boundaries requires careful analysis and may require significant changes to systems and processes. The data requirements of IFRS 17 are similar to those of Solvency II and address many of the potential gaps in IFRS 4 (p.B. data to model future premiums, equity benefits, options and guarantees). Solvency II also requires insurers to invest in data quality, control and management. However, there are differences in detail (for example. B the definition of a portfolio, the limits of the contract and unbundling). One of the main challenges will be to ensure that these different types of data are available and that the systems have the flexibility to account for differences in cash flow inputs between the two frameworks. Cash flows that are outside the limits of the contract at the time of initial recognition The question arises whether the expected cash flows resulting from the future exercise of the option are included within the limits of the contract and therefore in the valuation of the group of contracts to which it relates.

Currently, when evaluating insurance contracts that give policyholders the option to add insurance coverage at a later date, it is common to look at the premium for each component (i.e., the basic contract and the option) separately. Under IFRS 17, contract limits are set for the entire contract if the rights and obligations associated with the option are substantial and the contract is not divided into several components. Insurers may need to develop new estimates for a portion of cash flows in order to value these contracts in accordance with IFRS 17. One question that arises is what limits can limit an insurer`s practical ability to re-evaluate a contract. Although the details (identification of contracts, calculation approach, declared actions, responsibilities, etc.) are different, the basic requirements for data, structures, verifiability and traceability of processes and support systems are similar. Both regulations require the implementation of an end-to-end approach using an integrated framework. An integrated approach will also be needed to best support alignment between external reporting, management and regulation for IFRS 17 and Solvency II. Because IFRS 17 does not specify the sources of potential restrictions on these revaluations, it does not limit these restrictions to those of a contractual, legal or regulatory nature.

FIT members noted that before establishing contract limits at the beginning of an insurance contract, an insurer should consider whether: It may be easier to see when regulatory or legal requirements limit an insurer`s practical ability to re-evaluate its contracts than market and other constraints. FIT members noted that a wide margin of discretion is needed to determine whether the content of the Directive reflects several contracts with individual certificate holders or a single contract with an association or bank. Under IFRS 17, the limits of these contracts may be limited to the year for which the premiums were collected. In addition, it was pointed out that the insurer`s intention to reassess or reassess the risk is not relevant to the assessment of the limits of the contract – i.e. the limits of the contract end when the insurer has the practical opportunity to revalue the entire contract, even if it is unlikely that it will actually exercise its right of revaluation. For example, how should an insurer account for the exercise of a renewal option if the cash flows associated with renewal periods were initially outside the contract limit? Should the exercise of the option be considered an extension of the existing contract or a new contract? IFRS 17 may require an insurer to divide what is currently considered a contract into several shorter.B-term contracts, for example if there is a unilateral revaluation option against future coverage periods. This means that cash flows from the same legal contract could potentially fall into more than one group of insurance contracts if they were recognised in accordance with IFRS 17. .