IFRS IC decision on premiums receivable from an intermediary

Keywords: Mazars, Thailand, IFRS, Accounting, IASB, Insurance, IFRS 17, Premiums 

The Committee was asked about the standard to be applied to the premiums receivable of an insurer from its intermediary when the policyholder has already paid the insurance premiums to the intermediary (discharging itself of its obligations under the contract, and obliging the insurer to provide its insurance contract services), but the intermediary has not yet paid the premiums to the insurer.  

IFRS 17 is silent as to when future cash flows recognised in an insurance contract (excluding the simplified PAA model) are removed from the measurement of insurance contracts: when they are recovered or settled in cash or when the policyholder’s obligation under the insurance contract is discharged? 

In the first case, the insurer would apply IFRS 17; in the second case, the insurer would have a financial asset (IFRS 9). 

The Committee concluded that, under these circumstances, the insurer develops and applies an accounting policy in accordance with IAS 8 to determine when cash flows are removed from the measurement of insurance contracts. It observed that both standards would provide users with useful information. It also observed that adding a standard setting project to the work plan would involve assessing whether changes to the accounting standards would have unintended consequences, which may take considerable time and effort to complete. Consequently, a project would not be sufficiently narrow in scope that the IASB or the Committee could address it in an efficient manner, which ultimately led them not to add a standard-setting project to the work plan.  

The decision, which allows entities to apply either standard, should therefore not disrupt the practices adopted by insurers for the first-time application of IFRS 17 (and often IFRS 9 as well) this year.