Fulfilment cash flows

Learning objectives

• List the three elements of the fulfilment cash flows: estimates of future cash flows, discounting and the risk adjustment for non-financial risk.L1
• Calculate the fulfilment cash flows of a group from given present values and a given risk adjustment.L3

Normative references

• IFRS 17 §32On initial recognition, a group is measured at the total of the fulfilment cash flows (estimates of future cash flows, an adjustment to reflect the time value of money and the financial risks not already included, and a risk adjustment for non-financial risk) and the contractual service margin.

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

3 questions

• What are the components of the fulfilment cash flows of a group of insurance contracts?L1
• Pavane SA measures a group of contracts on initial recognition. It expects to pay {claims_amount} of claims in two years and to receive {premium_amount} of premiums in one year. Case data, from management's judgement: the discount rate is {discount_rate} (a rate not imposed by the standard) and the risk adjustment for non-financial risk is {risk_adjustment}. Calculate the present value of the outflows, the present value of the inflows and the fulfilment cash flows of the group (a negative amount means a net inflow).L3
• A trainee calculates the fulfilment cash flows of a group: present value of outflows of 2,000 euros, present value of inflows of 3,000 euros (case data). The trainee writes: "Fulfilment cash flows = 2,000 − 3,000 = −1,000 euros." The group's risk adjustment for non-financial risk is 400 euros (case data). What is the error in this calculation?L3