Objective

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The objective of this Standard is to establish principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of MFRS 17. The practices and processes for establishing contracts with customers vary across legal jurisdictions, industries and entities.

The Standard requires an entity to:

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1. Provide relevant information that faithfully represents the Insurance Contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.

2. Consider its substantive rights and obligations, whether they arise from a contract, law or regulation, when applying MFRS 17. A contract is an agreement between two or more parties that creates enforceable rights and obligations. Enforceability of the rights and obligations in a contract is a matter of law. Contracts can be written, oral or implied by an entity’s customary business practices.

3. Disregard terms that have no commercial substance as contractual terms include all terms in a contract, explicit or implied (eg no discernible effect on the economics of the contract). Implied terms in a contract include those imposed by law or regulation.

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Scope

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An entity shall apply MFRS 17 to:

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1. insurance contracts, including reinsurance contracts, it issues;

2. reinsurance contracts it holds; and

3. investment contracts with discretionary participation features it issues, provided the entity also issues insurance contracts; and

4. insurance contracts acquired by the entity in a transfer of insurance contracts or a business combination other than reinsurance contracts held.

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An entity shall not apply MFRS 17 to:

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1. warranties provided by a manufacturer, dealer or retailer in connection with the sale of its goods or services to a customer (see MFRS 15 Revenue from Contracts with Customers).

2. employers’ assets and liabilities from employee benefit plans (see IAS 19 Employee Benefits and MFRS 2 Share-based Payment) and retirement benefit obligations reported by defined benefit retirement plans (see IAS 26 Accounting and Reporting by Retirement Benefit Plans).

3. contractual rights or contractual obligations contingent on the future use of, or the right to use, a non-financial item (for example, some licence fees, royalties, variable and other contingent lease payments and similar items: see MFRS 15, IAS 38 Intangible Assets and MFRS 16 Leases).

4. residual value guarantees provided by a manufacturer, dealer or retailer and a lessee’s residual value guarantees when they are embedded in a lease (see MFRS 15 and MFRS 16).

5. financial guarantee contracts, unless the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts. The issuer shall choose to apply either MFRS 17 or IAS 32 Financial Instruments: Presentation, MFRS 7 Financial Instruments: Disclosures and MFRS 9 Financial Instruments to such financial guarantee contracts. The issuer may make that choice contract by contract, but the choice for each contract is irrevocable.

6. contingent consideration payable or receivable in a business combination (see MFRS 3 Business Combinations).

7. insurance contracts in which the entity is the policyholder, unless those contracts are reinsurance contracts held.

8. credit card contracts, or similar contracts that provide credit or payment arrangements, that meet the definition of an insurance contract if, and only if, the entity does not reflect an assessment of the insurance risk associated with an individual customer in setting the price of the contract with that customer (see MFRS 9 and other applicable MFRS Standards). However, if, and only if, MFRS 9 requires an entity to separate an insurance coverage component that is embedded in such a contract, the entity shall apply MFRS 17 to that component.

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Some contracts meet the definition of an insurance contract but have as their primary purpose the provision of services for a fixed fee. An entity may choose to apply MFRS 15 instead of MFRS 17 to such contracts that it issues if, and only if, specified conditions are met. The entity may make that choice contract by contract, but the choice for each contract is irrevocable. The conditions are:

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1. the entity does not reflect an assessment of the risk associated with an individual customer in setting the price of the contract with that customer;

2. the contract compensates the customer by providing services, rather than by making cash payments to the customer; and

3. the insurance risk transferred by the contract arises primarily from the customer’s use of services rather than from uncertainty over the cost of those services.

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Some contracts meet the definition of an insurance contract but limit the compensation for insured events to the amount otherwise required to settle the policyholder’s obligation created by the contract (for example, loans with death waivers). An entity shall choose to apply either MFRS 17 or MFRS 9 to such contracts that it issues unless such contracts are excluded from the scope of “An entity shall not apply MFRS 17 to”. The entity shall make that choice for each portfolio of insurance contracts, and the choice for each portfolio is irrevocable.

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