Combining contracts and separating components

Learning objectives

• Explain when a set of contracts is treated as a whole and which components are separated from an insurance contract.L2
• Determine, from the facts of a case, which component is separated and under which Standard it is accounted for.L3

Normative references

• IFRS 17 §9A set or series of contracts with the same or a related counterparty is treated as a whole when this is necessary to report the substance of the contracts, given their overall commercial effect.
• IFRS 17 §10An insurance contract may contain components that would fall within the scope of another Standard if they were separate contracts (investment component, services other than insurance contract services); the entity identifies and accounts for them by applying paras. 11 to 13: embedded derivatives and distinct investment components under IFRS 9, distinct goods or services under IFRS 15.
• IFRS 17 §11The entity applies IFRS 9 to determine whether an embedded derivative must be separated and how to account for it; it separates an investment component if, and only if, it is distinct as defined in paras. B31 and B32, and accounts for it under IFRS 9, except for investment contracts with discretionary participation features within IFRS 17.
• IFRS 17 §12After applying para. 11, the entity separates, by applying IFRS 15 para. 7 and paras. B33 to B35, any promise to transfer distinct goods or services other than insurance contract services, accounted for under IFRS 15; cash inflows are allocated in accordance with IFRS 15, and cash outflows first on the basis of direct attribution and then on a systematic and rational basis.

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

3 questions

• Which statements about combining contracts and separating components are correct? More than one answer is possible.L2
• An insurance contract of Solène SA contains an embedded derivative that must be separated and a distinct investment component (case facts). Under which standard is each of these two components accounted for after separation?L3
• Mistral SA offers, with an insurance contract, an equipment maintenance service that the case describes as a distinct good or service (case assumption). How should this service be treated?L3