Insurance risk

Learning objectives

• Explain that an insurance contract is a contract under which the issuer accepts significant insurance risk from a policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder.L1
• Distinguish insurance risk from financial risk in the facts of a contract.L2

Normative references

• IFRS 17An insurance contract is a contract under which one party (the issuer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder; insurance risk is risk, other than financial risk, transferred from the holder of a contract to the issuer.

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

3 questions

• A contract under which the issuer accepts significant insurance risk from the policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder is an insurance contract under IFRS 17.L1
• How does the definition of an insurance contract characterise insurance risk?L1
• A trainee classifies the risks of a life insurance contract that pays a lump sum on the policyholder's death. The trainee writes: "The policyholder's death is a financial risk transferred to the issuer, because it results in a cash payment; so there is no insurance risk." What is the error in this reasoning?L2