The fair value approach

Learning objectives

• Explain that, under the fair value approach, the margin is the difference between the fair value of the contracts and their fulfilment cash flows at the transition date.L3
• Calculate the margin at the transition date from a given fair value and given fulfilment cash flows.L4

Normative references

• IFRS 17 §C20Under the fair value approach, the margin (or loss component) at the transition date is the difference between the fair value of the group and its fulfilment cash flows at that date, without applying IFRS 13 para. 47 on demand features (paras. C20 to C24B).

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

2 questions

• At the transition date, Ondine SA applies the fair value approach to a group. The fair value of the group is {fair_value} (case data). Future flows are claims of {claims_amount} payable in two years and premiums of {premiums_amount} receivable in one year; the discount rate is {discount_rate} and the risk adjustment for non-financial risk is {risk_adjustment} (case data, management's judgement). Calculate the fulfilment cash flows of the group and the margin at the transition date.L4
• In the fair value approach on transition, which standard governs the measurement of the fair value of the group of contracts used as the reference?L2