Consistent with IAS 1, the second part of the disclosure objective established by the
IFRS 17 is that an entity should disclose the significant judgements and changes in
judgements made by an entity in applying the standard. [IFRS 17.93].
Specifically, an entity should disclose the inputs, assumptions and estimation techniques
used, including: [IFRS 17.117]
• the methods used to measure insurance contracts within the scope of IFRS 17 and
the processes for estimating the inputs to those methods. Unless impracticable, an
entity should also provide quantitative information about those inputs;
• any changes in the methods and processes for estimating inputs used to measure
contracts, the reason for each change, and the type of contracts affected;
• to the extent not covered above, the approach used:
• to distinguish changes in estimates of future cash flows arising from the
exercise of discretion from other changes in estimates of future cash flows for
contracts without direct participation features;
• to determine the risk adjustment for non-financial risk, including whether
changes in the risk adjustment for non-financial risk are disaggregated into an
insurance service component and an insurance finance component or are
presented in full in the insurance service result;
• to determine discount rates; and
• to determine investment components.
If, an entity chooses to disaggregate insurance finance income or expenses into amounts
presented in profit or loss and amounts presented in other comprehensive income
(see 15.3.1 to 15.3.3 above) the entity should disclose an explanation of the methods used
to determine the insurance finance income or expenses recognised in profit or loss.
[IFRS 17.118].
An entity should also disclose the confidence level used to determine the risk
adjustment for non-financial risk. If the entity uses a technique other than the
confidence level technique for determining the risk adjustment for non-financial risk, it
should disclose: [IFRS 17.119]
• the technique used; and
• the confidence level corresponding to the results of that technique.
Insurance contracts (IFRS 17) 4589
An entity should disclose the yield curve (or range of yield curves) used to discount cash
flows that do not vary based on the returns on underlying items. When an entity
provides this disclosure in aggregate for a number of groups of insurance contracts, it
should provide such disclosures in the form of weighted averages, or relatively narrow
ranges. [IFRS 17.120].
16.3 Nature and extent of risks arising from contracts within the
scope of IFRS 17
The third part of the disclosure objective established by the standard is that an entity
should disclose the nature and extent of the risks from contracts within the scope of
IFRS 17. [IFRS 17.93].
To comply with this objective, an entity should disclose information that enables users
of its financial statements to evaluate the nature, amount, timing and uncertainty of
future cash flows that arise from contracts within the scope of IFRS 17. [IFRS 17.121].
The disclosures detailed below are considered to be those that would normally be
necessary to meet this requirement. These disclosures focus on the insurance and
financial risks that arise from insurance contracts and how they have been managed.
Financial risks typically include, but are not limited to, credit risk, liquidity risk and
market risk. [IFRS 17.122]. Many similar disclosures were contained in IFRS 4, often
phrased to the effect that an insurer should make disclosures about insurance contracts
assuming that insurance contracts were within the scope of IFRS 7. The equivalent
disclosures now required by IFRS 17 are more specific to the circumstances of the
measurement of insurance contracts in the standard and do not cross-refer to IFRS 7.
For each type of risk arising from contracts within the scope of IFRS 17 an entity should
disclose: [IFRS 17.124]
• the exposures to risks and how they arise;
• the entity’s objectives, policies and processes for managing the risks and the
methods used to measure the risks; and
• any changes in the above from the previous period.
An entity should also disclose, for each type of risk: [IFRS 17.125]
• summary quantitative information about its exposure to that risk at the end of the
reporting period. This disclosure should be based on the information provided
internally to the entity’s key management personnel; and
• the disclosures detailed at 16.3.1 to 16.3.5 below, to the extent not provided by the
summary quantitative information required above.
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If the information disclosed about an entity’s exposure to risk at the end of the reporting
period is not representative of its exposure to risk during the period, the entity should
disclose that fact, the reason why the period-end exposure is not representative, and
further information that is representative of its risk exposure during the period.
[IFRS 17.123].
Disclosure of an entity’s objectives, policies and processes for managing risks and the
methods used to manage the risk provides an additional perspective that complements
information about contracts outstanding at a particular time and might include
information about:
• the structure and organisation of the entity’s risk management function(s),
including a discussion of independence and accountability;
• the scope and nature of its risk reporting or measurement systems, such as internal
risk measurement models, sensitivity analyses, scenario analysis, and stress testing,
and how these are integrated into the entity’s operating activities. Useful disclosure
might include a summary description of the approach used, associated assumptions
and parameters (including confidence intervals, computation frequencies and
historical observation periods) and strengths and limitations of the approach;
• the processes for accepting, measuring, monitoring and controlling insurance risks
and the entity’s underwriting strategy to ensure that there are appropriate risk
classification and premium levels;
• the extent to which insurance risks are assessed and managed on an entity-wide basis;
• the methods employed to limit or transfer insurance risk exposures and avoid
undue concentrations of risk, such as retention limits, inclusion of options in
contracts, and reinsurance;
• asset and liability management (ALM) techniques; and
• the processes for managing, monitoring and controlling commitments received (or
given) to accept (or contribute) additional debt or equity capital when specified
events occur.
Additionally, it might be useful to provide disclosures both for individual types of risks
insured and overall. These disclosures might include a combination of narrative
descriptions and specific quantified data, as appropriate to the nature of the contracts
and their relative significance to the insurer.
Quantitative information about exposure to insurance risk might include:
• information about the nature of the risk covered, with a brief summary description
of
the class (such as annuities, pensions, other life insurance, motor, property and liability);
• information about the general nature of participation features whereby
policyholders share in the performance (and related risks) of individual contracts or
pools of contracts or entities. This might include the general nature of any formula
for the participation and the extent of any discretion held by the insurer; and
Insurance contracts (IFRS 17) 4591
• information about the terms of any obligation or contingent obligation for the
insurer to contribute to government or other guarantee funds established by law
which are within the scope of IAS 37.
16.3.1
Concentrations of risk
An entity should disclose information about concentrations of risk arising from
contracts within the scope of IFRS 17, including a description of how the entity
determines the concentrations, and a description of the shared characteristic that
identifies each concentration (for example, the type of insured event, industry,
geographical area, or currency).
The standard explains that concentrations of financial risk might arise, for example,
from interest-rate guarantees that come into effect at the same level for a large number
of contracts. Concentrations of financial risk might also arise from concentrations of
non-financial risk; for example, if an entity provides product liability protection to
pharmaceutical companies and also holds investments in those companies (i.e. a sectoral
concentration). [IFRS 17.127].
Other concentrations could arise from, for example:
• a single insurance contract, or a small number of related contracts, for example when
an insurance contract covers low-frequency, high-severity risks such as earthquakes;
• single incidents that expose an insurer to risk under several different types of
insurance contract. For example, a major terrorist incident could create exposure
under life insurance contracts, property insurance contracts, business interruption
and civil liability;
• exposure to unexpected changes in trends, for example unexpected changes in
human mortality or in policyholder behaviour;
• exposure to possible major changes in financial market conditions that could cause
options held by policyholders to come into the money. For example, when interest
rates decline significantly, interest rate and annuity guarantees may result in
significant losses;
• significant litigation or legislative risks that could cause a large single loss, or have
a pervasive effect on many contracts;
• correlations and interdependencies between different risks;
• significant non-linearities, such as stop-loss or excess of loss features, especially if a
key variable is close to a level that triggers a material change in future cash flows; and
• geographical concentrations.
Disclosure of concentrations of insurance risk might include a description of the shared
characteristic that identifies each concentration and an indication of the possible
exposure, both before and after reinsurance held, associated with all insurance liabilities
sharing that characteristic.
4592 Chapter 52
Disclosure about the historical performance of low-frequency, high-severity risks might be
one way to help users assess cash flow uncertainty associated with those risks. For example,
an insurance contract may cover an earthquake that is expected to happen, on average, once
every 50 years. If the earthquake occurs during the current reporting period the insurer will
report a large loss. If the earthquake does not occur during the current reporting period the
insurer will report a profit. Without adequate disclosure of long-term historical performance,
it could be misleading to report 49 years of large profits, followed by one large loss, because
users may misinterpret the insurer’s long-term ability to generate cash flows over the
complete cycle of 50 years. Therefore, describing the extent of the exposure to risks of this
kind and the estimated frequency of losses might be useful. If circumstances have not
changed significantly, disclosure of the insurer’s experience with this exposure may be one
way to convey information about estimated frequencies. However, there is no specific
requirement to disclose a probable maximum loss (PML) in the event of a catastrophe.
16.3.2
Insurance and market risks – sensitivity analysis
An entity should disclose information about sensitivities to changes in risk exposures
arising from contracts within the scope of IFRS 17. To comply with this requirement, an
entity should disclose: [IFRS 17.128]
• a sensitivity analysis that shows how profit or loss and equity would have been
affected by changes in risk exposures that were reasonably possible at the end of
the reporting period:
• for insurance risk – showing the effect for insurance contracts issued, before
and after risk mitigation by reinsurance contracts held; and
• for each type of market risk – in a way that explains the relationship between
the sensitivities to changes in risk exposures arising from insurance contracts
and those arising from financial assets held by the entity.
• the methods and assumptions used in preparing the sensitivity analysis; and
• changes from the previous period in the methods and assumptions used in
preparing the sensitivity analysis, and the reasons for such changes.
Market risk comprises three types of risk: currency risk, interest rate risk and other price
risk. [IFRS 7 Appendix A].
If an entity prepares a sensitivity analysis (e.g. an embedded value analysis) that shows
how amounts different from those above are affected by changes in risk exposures and
uses that sensitivity analysis to manage risks arising from contracts within the scope of
IFRS 17, it may use that sensitivity analysis in place of the analysis specified above. The
entity should also disclose: [IFRS 17.129]
• an explanation of the method used in preparing such a sensitivity analysis and of
the main parameters and assumptions underlying the information provided; and
• an explanation of the objective of the method used and of any limitations that may
result in the information provided.
Insurance contracts (IFRS 17) 4593
16.3.3
Insurance risk – claims development
An entity should disclose actual claims compared with previous estimates of the
undiscounted amount of the claims (i.e. claims development). The disclosure about
claims development should start with the period when the earliest material claim(s)
arose and for which there is still uncertainty about the amount and timing of the claims
payments at the end of the reporting period; but the disclosure is not required to start
more than 10 years before the end of the reporting period (although there is transitional
relief for first-time adopters – see 17.2 below). An entity is not required to disclose
information about the development of claims for which uncertainty about the amount
and timing of the claims payments is typically resolved within one year. [IFRS 17.130].
An entity should reconcile the disclosure about claims development with the aggre
gate
carrying amount of the groups of insurance contracts which comprise the liabilities for
incurred claims (see 16.1.1 and 16.1.2 above). [IFRS 17.130]. Hence, only incurred claims are
required to be compared with previous estimates and not any amounts within the
liability for remaining coverage. In this context incurred claims appears to include those
arising from reinsurance contracts held as well as those arising from insurance and
reinsurance contracts issued. [IFRS 17.100].
These requirements apply to incurred claims arising from all models (i.e. general model,
premium allocation approach and variable fee approach). However, because insurers
need not disclose the information about claims for which uncertainty about the amount
and timing of payments is typically resolved within a year, it is unlikely that many life
insurers will need to give the disclosure.
Any discounting adjustment will be a reconciling item as the claims development table is
required to be undiscounted. Given the long tail nature of many non-life insurance claims
liabilities it is likely that many non-life insurers will still have claims outstanding at the
reporting date that are more than ten years old and which will also need to be included in
a reconciliation of the development table to the statement of financial position.
IFRS 17 does not contain an illustrative example of a claims development table (or,
indeed specifically require disclosure in a tabular format). The example below is based
on an illustrative example contained in the Implementation Guidance to IFRS 4. This
example, as a simplification for illustration purposes, presents five years of claims
development information by underwriting year although the standard itself requires ten
(subject to the transitional relief upon first-time adoption) and assumes no reinsurance
held. Other formats are permitted, including for example, presenting information by
accident year or reporting period rather than underwriting year.
Example 52.52: Disclosure of claims development
The top half of the table shows how the insurer’s estimates of incurred claims for each underwriting year
develop over time. For example, at the end of 2017, the insurer’s estimate of the undiscounted liability for
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 907