Many reinsurance contracts include an interruption clause that allows either party to terminate the contract at any time after a 90-day notice period. This creates a contractual limit for all new transactions that the transferor writes beyond the 90-day period from the balance sheet date. The question arises as to how an effectively rolling contractual border should be treated in the next reporting period. Should coverage be reported as new contracts compared to the period after the initial limit, or do they reflect changes in assumptions regarding new activities in the original contract? This question is related to the discount rate to be used to determine the MSC for coverage beyond the initial limit. Should it be the rate at the beginning of the contract or a rate based on the revised deadline? Some reinsurance contracts contain conditions that allow the reinsurer to prospectively reassess the remaining coverage under a contract after notifying the transferor. Only if the reinsurer announces the revaluation does the transferor have the right to terminate the coverage in the medium term. If, after initial recognition, a group of insurance contracts underlying a group of reinsurance contracts becomes heavy, the resulting changes in the performance cash flows of the group of reinsurance agreements held shall be recognised in profit or loss. This avoids accounting discrepancies that would otherwise occur. The Company measures the present value of future cash inflows in accordance with the cash outflow assumptions of the underlying insurance contracts. Therefore, the estimated cash inflows is CU 270 million (or 30% of CU 900 million). The risk adjustment represents the amount of risk transferred by the reinsurance policy holder to the policy issuer. Therefore, the adjustment of the risk treated as an inflow rather than an outflow is UA 18 million (about 30% of 60%). Changes in settlement cash flows related to future services for the underlying insurance contract groups are recognised immediately in the income statement (rather than being deducted from the MSC) if the underlying contract groups are heavy.
Insurers need to determine the extent to which changes in the cash flow performance of reinsurance contracts held are related to the corresponding changes in the underlying contracts recognised in profit or loss. This requires a way to attribute changes in the performance cash flows of a heavy group of underlying contracts to those protected by reinsurance. This may not be easy, for example. B, if only a subset of the underlying contracts of a group are reinsured by a particular group of reinsurance contracts. An entity may choose to subdivide groups of issued contracts and/or groups of reinsurance contracts to facilitate matching. D) Change in settlement cash flows relative to future services, unless the change results from a change in performance cash flows allocated to a group of underlying insurance contracts that does not fit the CSM for the group of underlying insurance contracts Recognition of losses at the time of initial recognition by IFRS 17 reinsurance holders requires that a reinsurance contract, which is held, accounted for separately from the underlying insurance contracts to which it relates. Indeed, an entity holding a reinsurance contract (a transferor) generally does not have the right to reduce the amounts it owes to the underlying policyholder by the amounts it expects from the reinsurer. The discussion at the Council table clarified that the amendment applies to reinsurance treaties that cover claims from each underlying treaty on an appropriate basis, which requires careful preparation when updating the standard.
This scope differs from so-called proportional reinsurance, in which claims and premiums are proportional to those of the underlying insurance contract. Non-proportionate reinsurance contracts are not covered by the amendment as there is no direct link between the underlying onerous contracts and the reinsurance contracts held. A transferor measures the reinsurance contracts it holds by applying a modified version of the general model or, if the contract is eligible, the premium allocation approach. The requirements of the general model are amended for reinsurance contracts to reflect: [IFRS 17 BC302]: The draft (DE) proposed a change in the valuation of a group of reinsurance contracts […].
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