Financial Reporting and Assurance
Ind AS 117 Insurance Contracts: Key Principles and Transition
- Notified on August 2024
- Effective date: April 1, 2024. Early adoption of the standard is permitted provided that disclosure is made in the notes to accounts.
- Transition stage: Apply retrospective application, unless impracticable, with certain allowed modifications.
- It supersedes Ind AS 104.
Key Differences: Ind AS 104 vs Ind AS 117
| Ind AS 104 | Ind AS 117 | |
| Scope | This Applied to contracts that are classified as insurance contracts; non-insurance companies could often use Ind AS 37 Provisions / Contingent Liabilities or other standards for guarantee-type arrangements. | Scope is much broader in requiring that any entity issuing or holding contracts that meet the definition of insurance contract must apply Ind AS 117. The standard specifically covers reinsurance held/issued, investment contracts with discretionary participation features, etc. Non-insurance companies will be impacted more. |
| Definition of Insurance Risk / Significant Insurance Risk | there was a test of “significant insurance risk” to classify contracts into insurance vs investment contract. But less guidance on how to measure significance with respect to present value etc. | In Ind AS 117 “significant insurance risk” test more detailed than Ind As 104 |
| Measurement Models | Actuarial methods | Three measurement approaches 1. General Measurement Model (GMM) 2. Premium Allocation Approach (PAA) (a simplified method for certain short-duration contracts) 3. Variable Fee Approach (VFA) for contracts with direct participation features. |
| Disclosure & Presentation | Under Ind 104 limited disclosure | IND AS 117 requires more extensive disclosures |
| Contractual Service Margin | Under Ind AS 104, there is no concept CSM. Insurers often used a “future profit margin” or similar “margin” concept embedded in their liabilities or premium recognition policies. Margin = Premium less liability estimates / margin assumptions under insurer’s accounting policy |
Ind 117 introduced new concept CSM. It represents the unearned profit that the insurer company except to recognise. The insurer calculates fulfilment cash flows (FCF) CSM= Consideration (premium) − Fulfillment Cash Flows |