The Interaction Between IFRS 4 and IFRS 7

Currently required

Previously required

IG 45

When determining the broad classes for which separate disclosure is required, an insurer might consider how best to indicate the level of uncertainty associated with the risks underwritten.

In this regard, it is also important to note the requirement in IFRS 7 whereby instruments outside the scope of IFRS 7 may not be grouped in the same class as those instruments within the scope of IFRS 7.  Insurance contracts, as defined by IFRS 4, are specifically scoped out of IFRS 7.  It therefore follows that insurance contract liabilities, e.g. outstanding claims, should not be grouped in the same class as financial liabilities, e.g. trade and other payables.

When determining the broad classes for which separate disclosure is required, an insurer might consider the need to indicate the level of uncertainty associated with the risks underwritten.

IG 48

The previous requirement has been expanded to include disclosure about the processes followed managing the risks from insurance contracts.

Amongst others, disclosure has to be provided about -

• The structure and organisation of an insurer's risk management functions as well as information regarding the independence and accountability of these risk management functions;
• The process for accepting, measuring, monitoring and controlling insurance risks; and

• The process for managing, monitoring and controlling additional debt or capital commitments on the occurrence of specified events.

An insurer has to provide information about its objectives in managing the risks from its insurance contracts and what its policies are for mitigating those risks.

IG 49 and IG 50

Although the section dealing with disclosure of the terms and conditions of insurance contracts has been deleted, this type of disclosure may still be required as part of disclosure on the sensitivity of insurance risk.

Disclosure regarding the terms and conditions of insurance contracts.

IG 51A

Disclosure of insurance risk has been expanded to consider disclosure of the following:

• Information about the nature of the risks covered, including a short summary describing the classes;
• Information about policyholder participation features (i.e. discretionary participation features); and

• Information about any obligation (contingent or otherwise) to contribute to government or other guarantee funds.

Disclosure regarding insurance risk.

IG 52 to
IG 54

Disclosure regarding the insurer's sensitivity to insurance risk. The standard allows two alternatives for this disclosure, namely:

• Qualitative  disclosure of how profit or loss and equity would be impacted with changes in risk variables that were reasonably possible at the reporting date; and
• Qualitative disclosure of sensitive information and information about the terms and conditions of insurance contracts that have a material effect on the amount, timing and uncertainty of the insurer's future cash flows.

Disclosure regarding the sensitivity of profit or loss and equity for changes in variables that have a material effect on them.

IG 55

Disclosure regarding concentrations of insurance risk has been expanded to include a cross reference to the capital disclosure requirements of IAS 1 Presentation of Financial Statements (IAS 1).

Disclosure regarding concentrations of insurance risk.

IG 62 to
IG 65

Requires disclosure regarding credit risk, liquidity risk and market risk as if the insurance contracts are within the scope of IFRS 7.  Similar to IFRS 4, these additional disclosures may either be provided in the financial statements or incorporated by cross-reference to another statement that is available to users of the financial statements on the same terms and at the same time as the financial statements.

Amongst others, these disclosures may include the following:

• The risk that an insurer may incur a financial loss because a reinsurer fails to pay in accordance with the terms of a reinsurance contract, i.e. credit risk exposure from balances owed by reinsurers.
• Credit risk exposure from balances owed by agents and brokers.
• IFRS 7 requires disclosure of the remaining contractual maturities of financial liabilities.  For insurance contracts the remaining contractual maturities refer to the estimated date when the contractually required cash flows will occur.  Should an insurer already disclose an analysis, by estimated timing, of the amounts recognised in the balance sheet, the IFRS 7 maturity analysis is not required for insurance liabilities. An insurer may also consider disclosing how the maturity analysis could be influenced with changes in the exercise of lapse or surrender options.
• A sensitivity analysis for each type of market risk should be disclosed at the reporting date.  This requirement may be met by disclosing an embedded value sensitivity analysis for insurance contracts.

• If no reasonable possible change in the relevant market risk variables will impact profit or loss and equity, a statement to that effect should be included in the financial statements.

Requires disclosure regarding interest rate risk and credit risk as if the insurance contracts were within the scope of IAS 32.