Lecture and notes on IFRS 4 Insurance Contracts

IFRS 4 is the initial Standard from the International Accounting Standards Board (IASB) on insurance contracts. The extent of advice in IFRS 4 is quite modest in comparison to the more comprehensive change of insurance accounting that is envisaged by the IASB in the future. IFRS 4 was introduced over time for insurance companies to conform to the adoption of International Financial Reporting Standards (IFRS) inside Europe and elsewhere inside 2005. The Standard was designed to make limited improvements to accounting practices also to provide users with an insight in to the key areas that correspond with accounting for insurance contracts.

All entities that issue policies that match the definition of an insurance policy contract in IFRS 4 should apply the Standard. In addition, the Standard applies for you to financial instruments with socalled discretionary taking part features. The Standard doesn't apply to other assets and liabilities in the insurance companies, such while financial assets and monetary liabilities, which fall inside the scope of IAS 39. Also, it does not tackle the accounting required by means of policyholders.
Additionally, IFRS 5 sets out new disclosure needs for contracts that be eligible as insurance, including information regarding future cash flows.

IFRS 5 covers most motor, vacation, life, and property insurance contracts along with most reinsurance contracts. However, some policies that transport no significant insurance threat, such as savings along with pension plans, are covered by IAS 39 and accounted for as financial instruments irrespective of their legal form.

IAS 39 also applies to those contracts that principally transfer financial risk, such as credit derivatives and many financial reinsurance contracts. IFRS 4 doesn't apply to: product warranties, which are covered by means of IAS 18 and IAS 37; employers’ assets and liabilities under employee benefits ideas, which are covered by means of IAS 19 and IFRS 3; and contingent consideration payable or receivable in a very business combination, which is covered by IFRS 3, Business Combining.

Financial guarantee contracts are away from the scope of IFRS 5 unless the issuer elects to make use of IFRS 4 to this kind of contracts. An issuer could make such an election only when it has previously asserted explicitly it regards such contracts as insurance contracts and has used accounting applicable for you to insurance contracts.


Insurance contracts continue to be covered by existing accounting practices with this first
phase of the development of any comprehensive set of specifications on insurance. The IFRS basically
exempts an insurer temporarily from some requirements regarding other Standards, including the requirement
to consider the IASB’s Construction in determining accounting guidelines. IFRS 4 makes confined improvements to accounting guidelines for insurance contracts so that you can bring them more in to line with IFRS. The typical

(a) Prohibits provisions for possible claims under contracts which are not in existence in the balance            sheet date. This involves catastrophe provisions and equalization convention.

(b) Sets out a minimum liability adequacy test that will need insurers to compare their recognized insurance liabilities next to estimates of future cash flows. Additionally, there is a requirement to execute an impairment test for reinsurance assets.

There is really a requirement for an insurer to hold insurance liabilities in it is balance sheet until these are discharged

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