Groups by profitability

Learning objectives

• List the three minimum groups of a portfolio based on expected profitability at initial recognition.L1
• Classify contracts in the appropriate group from the cash flows and assumptions of a case.L3

Normative references

• IFRS 17 §16An entity divides a portfolio into a minimum of three groups: contracts that are onerous at initial recognition, contracts that have no significant possibility of becoming onerous subsequently, and the remaining contracts.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Into which minimum groups does IFRS 17 require a portfolio of insurance contracts to be divided?L1
• An analyst writes: "Contract no. 7 is onerous on initial recognition, but the portfolio as a whole is profitable; I will therefore place it with the remaining contracts." What is the error in this reasoning?L3
• On initial recognition, Norvia SA analyses three contracts of the same portfolio. Contract X: the fulfilment cash flows are a net outflow of 30 euros. Contract Y: positive margin, and the case assumptions show that even a sharp rise in claims would not make it onerous. Contract Z: positive margin, but a plausible rise in claims would make it onerous (case assessment). Which classification complies with the three minimum groups?L3