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WorkpaperIFRS 17 — Insurance ContractsL3 · L4

Contractual service margin roll-forward: interest at the locked-in rate, changes relating to future service, release by coverage units and loss component

5 missions10 sections to document90 min
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Status
Published

Objective of the workpaper

Record the opening margin, the locked-in rate of the group, the changes relating to future service and the share of coverage units of the period: this share is case data. Compute the interest, the margin before release, the release and the closing margin, then record the release as insurance revenue. For an onerous group, compute the reversal of the loss component, capped at its balance. For proportionate cover of an onerous underlying group, compute the loss recovery; at transition, under the fair value approach, compute the margin as the fair value less the fulfilment cash flows (case data).

10 sections · 34 blocks · 7 calculations · 1 entry

  • IFRS 17 §B119

Work this workpaper as a mission

Each case that uses this template opens in the mission workspace: data, analysis, calculation, entries, conclusion and review, with your progress saved.

5 instances from the cases: the calculations and entries below are run by the calculation engine.

File and entity
Subsequent measurement: margin roll-forward, coverage units, loss component, insurance service result and finance expense
Case tasks documented here
  • Group P: compute the interest on the margin.
  • Group P: compute the margin before release.
  • Does the coverage unit used reflect the quantity of benefits and the expected coverage duration?
  • Group P: compute the release of the period.
  • Group P: compute the closing margin.
  • Record the release of the margin to insurance revenue.
  • Group Q: compute the reversal of the loss component.
1

Facts and data

Inputs

  • Group of contracts: composition, coverage period, level of the margin

    TextRequired

    PROTECTION_GROUP_ISSUED_IN_20X6_WITH_A_POSITIVE_MARGIN

  • Movements of the period: new contracts, revised estimates, currency effects

    Text

    FAVOURABLE_AND_ADVERSE_CHANGES_RELATING_TO_FUTURE_SERVICE_NO_NEW_CONTRACT

  • Coverage unit used, units provided in the period and units expected

    Text

    100_UNITS_PROVIDED_AND_300_UNITS_EXPECTED_AFTER_THE_PERIOD

  • Opening margin

    Number

    120,000

  • Locked-in rate of the group (case data)

    Number

    5 %

  • Margin of the new contracts added to the group

    Number

  • Favourable change in the flows relating to future service

    Number

    8,000

  • Adverse change in the flows relating to future service

    Number

    2,000

  • Margin before release per the accounting records

    Number

    132,000

  • Share of the coverage units of the period (fraction given by the case)

    Number

    25 %

  • Balance of the loss component

    Number

  • Favourable change in the flows of the onerous group relating to future service

    Number

  • Loss of the onerous underlying group at initial recognition

    Number

  • Share of the claims of the underlying group that the reinsurance contract recovers (%)

    Number

  • Fair value of the group at the transition date

    Number

  • Fulfilment cash flows of the group at the transition date

    Number

2

Supporting documents

Evidence

  • Documents obtained and referenced (opening margin, actuarial note on the changes, statement of coverage units)

    EvidenceRequired

3

Analysis of the margin roll-forward

Analysis

IFRS 17 §B119

  • Points examined: movements of the margin, coverage units, loss component

    ChecklistRequired

    • Interest computed at the locked-in rate of the group
    • Changes in the flows relating to future service taken to the margin
    • Margin at the end of the period allocated between the units provided in the period and the future units
    • Loss component tracked separately and reversed before any margin is re-established
4

Calculations

Calculations

IFRS 17 §B119

  • Interest on the margin (opening margin × locked-in rate)

    Calculation

    6,000

    Opening margin ; Locked-in rate of the group (case data)

  • Margin before release (opening + new contracts + interest ± changes)

    Calculation

    132,000

    Opening margin ; Margin of the new contracts added to the group ; Interest on the margin (opening margin × locked-in rate) ; Favourable change in the flows relating to future service ; − Adverse change in the flows relating to future service ; Margin before release per the accounting records

  • Release of the period (margin before release × share of coverage units)

    Calculation

    33,000

    Margin before release (opening + new contracts + interest ± changes) ; Share of the coverage units of the period (fraction given by the case)

  • Closing margin (margin before release − release)

    Calculation

    99,000

    Margin before release (opening + new contracts + interest ± changes) ; − Release of the period (margin before release × share of coverage units)

  • Reversal of the loss component (the lower of the balance and the favourable change)

    Calculation

    Balance of the loss component ; Favourable change in the flows of the onerous group relating to future service

  • Loss-recovery component (loss of the underlying group × share recovered)

    Calculation

    Loss of the onerous underlying group at initial recognition ; Share of the claims of the underlying group that the reinsurance contract recovers (%)

  • Margin at transition, fair value approach (fair value − fulfilment cash flows)

    Calculation

    0

    Fair value of the group at the transition date ; − Fulfilment cash flows of the group at the transition date

5

Illustrative entries

Entries

  • Entry of the release of the margin to revenue

    Entry

    AccountDebitCredit
    Insurance contract liability33,000
    Insurance revenue33,000
6

Judgments: coverage unit and loss component

Judgment

IFRS 17 §B119

  • Coverage unit and share of the period

    JudgmentRequired

    Unit reflecting the quantity of benefits and the expected coverage duration

    Unit reflecting the quantity of benefits and the expected coverage duration / Unit to revisit: the share used does not reflect the benefits / Not applicable

    Professional judgment: the standard gives little detail on the definition of the coverage unit; the choice and the share are case data.

  • Rationale: benefits provided, expected duration, units of the period and future units (fraction given by the case)

    Text

    THE_UNIT_IS_INSURED_CAPITAL_TIMES_DURATION_AND_THE_SHARE_OF_THE_PERIOD_IS_A_CASE_FRACTION

  • Reversal of the loss component

    JudgmentRequired

    Not applicable

    Reversal capped at the balance of the loss component (case convention) / Allocation to revisit / Not applicable

    Case convention (pedagogical assumption, not attributed to IFRS 17): the favourable change first reduces the loss component, within the limit of its balance.

  • Rationale: balance of the component, favourable change, treatment of any excess

    Text

7

Items to document for the notes

Disclosure

IFRS 17 §B119

  • Information to prepare on the margin

    Checklist

    • Margin reconciliation: opening, new contracts, interest, changes, release, closing
    • Timing of the release of the remaining margin
8

Effect on the financial statements

FS impact

  • Effect derived from the entries

    Table

9

Conclusion

Conclusion

  • Closing margin of the group, release of the period, loss component and judgments on the coverage unit

    ConclusionRequired

10

Normative references

References

  • Normative references cited in this workpaper

    References

11

Checks and financial statement impact

  • Group describedPass
  • Coverage unit judged and supportedPass
  • Reversal of the loss component judged and supportedPass
  • Recomputed margin before release = margin in the accounting recordsPass
  • Margin before release = closing margin + releasePass
  • Release entry balancedPass
Assets
0
Liabilities
-33,000
Profit or loss
33,000
OCI
0
Equity
33,000