In practice, companies may acquire rather than issue an insurance contract – i.e. they might acquire the contractual rights and obligations of previously issued insurance contracts from another company. IFRS 17 Insurance Contracts will change the accounting for these insurance contracts, whether they are acquired via a transfer or via a business combination in the scope of IFRS 3 Business Combinations.
What’s the issue?
Under IFRS 17, insurance contracts acquired will be classified and measured based on their contractual terms, economic conditions and other factors as at the date of acquisition, not their date of inception (or modification).
There are specific reliefs and exceptions that may apply depending on when insurance contracts are acquired – i.e. before transition, in the comparative period or after initial application of IFRS 17.
What the impact?
For some insurance contracts, classification and measurement will differ significantly between those that are issued and those that are acquired. These measurement differences may cause a ‘dual contractual service margin’ for parent and subsidiary reporting, which will need to be tracked and explained.
When and how a contract is acquired will also impact the accounting for those contracts.
Previously recognised intangible assets (under IAS 38 Intangible Assets) related to insurance contracts acquired may also need to be adjusted.
What’s next?
- Identify your past acquisitions and information you have available.
- Assess your systems and processes to ensure they can support the new accounting requirements.
- Educate stakeholders on the financial impacts of the new requirements when preparing for future transfers of insurance contracts or business combinations.
- Involve specialists: transfers of insurance contracts or business combinations are often unique and complex.
Our guide will help you understand and prepare for the changes to accounting for acquired insurance contracts under IFRS 17.
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