When to recognise(reflect in the Financial statement for thefirst time) a group of insurance contract
Earliest of:
a. The date the insurance cover starts.
b. The date the first payment by the policyholder become due.
c. When the group of contracts becomes onerous(for onerous contracts only)
How to determine the value at which a group of insurance contracts will be intially recognised
Remember that insurance contracts are grouped
Value when first recognised= Fulfilment cashflows+Contractual service margin (total premium+profit)
Fulfilment cashflows=Present of estimated future cashflows(future premium)- adjustment for non-financial risk
The estimated future cashflows should be:
-current (applicable to the current economic situation)
-explicit (very clear)
-unbiased
-reflect all info available to the entity
- reflect perspective of the entity (i.e. where it is going) provided that the estimate of relevant market variables are consistent with observable market prices.
The discount rate used to discount the future cashflows should:
- reflect time value of money(obviously)
-exclude the effect of factors that don't affect the estimated future cashflows(this make sense because only
factors related to thr cashflows being discounted should be considered
-reflect cashflow characteristics of the insurance contracts and also those of financial instruments whose CF characteristics are similar to those of the contracts.
Contractual service margin
It should be an amount that results in zero income/loss arising from:
-initial recognition of an amount for the fulfilment cashflows
-the de-recognition at that date of any asset and liability recognised for insurance acquisition cashflow
-any cashflow arising from contracts in the group at that date