Measurement under the premium allocation approach

Learning objectives

• Explain that the liability for remaining coverage is the premiums received less the amount recognised as revenue, with an onerous contract test.L2
• Calculate the liability for remaining coverage of a group at the reporting date from given premiums and revenue.L3

Normative references

• IFRS 17 §55Under the premium allocation approach, the liability for remaining coverage is, on initial recognition, the premiums received less insurance acquisition cash flows (unless expensed under para. 59(a)), adjusted for assets or liabilities derecognised; subsequently, it is increased by premiums received and by the amortisation of acquisition cash flows recognised as an expense, and decreased by acquisition cash flows paid, revenue recognised and investment components paid or transferred.
• IFRS 17 §57If facts and circumstances indicate that a group measured under the premium allocation approach is onerous, the entity compares the liability for remaining coverage with the fulfilment cash flows relating to remaining coverage; the excess of those cash flows is recognised as a loss (para. 58).

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

2 questions

• Zénith SA issues a group of twelve-month contracts eligible for the premium allocation approach. It receives {premium_received} of premiums at issue and pays {acquisition_cash_flows} of acquisition cash flows, which it deducts from the liability (it does not use the option to expense them). Case convention: insurance revenue and the amortisation of acquisition cash flows follow the time elapsed; {months_elapsed} have elapsed. Calculate the initial liability for remaining coverage, the revenue of the period and the closing liability.L3
• Étoile SA issues a group of contracts eligible for the premium allocation approach and receives {premium_received} of premiums at issue (acquisition cash flows nil: case data). Record the entry that recognises the receipt of the premium and the liability for remaining coverage.L2