Life Insurance Contracts Disclosure – Explanation of Recognised Amounts (AASB1038_07-04_COMPmay19_01-20)

A life insurer shall disclose information that identifies and explains the amounts in its financial statements arising from life insurance contracts.

To comply with paragraph 14.1, a life insurer shall disclose:

(a) its accounting policies for life insurance contracts and related assets, liabilities, income and expense;

(b) the recognised assets, liabilities, income, expense and cash flows arising from life insurance contracts. Furthermore, if the life insurer is a cedant, it shall disclose:

(i) gains and losses recognised in profit or loss at the time of buying reinsurance; and

(ii) if the cedant defers and amortises gains and losses arising at the time of buying reinsurance, the amortisation for the period and the amounts remaining unamortised at the beginning and end of the period;

(c) the process used to determine the assumptions that have the greatest effect on the measurement of the recognised amounts described in (b). When practicable, a life insurer shall also give quantified disclosure of those assumptions;

(d) the effect of changes in assumptions used to measure life insurance assets and life insurance liabilities, showing separately the effect of each change that has a material effect on the financial statements; and

(e) reconciliations of changes in life insurance liabilities and reinsurance assets.

When applying paragraph 14.1.1(b) and disclosing recognised income arising from life insurance contracts, life insurers would normally disclose income from direct and reinsurance business. In accordance with the principles embodied in this Standard, with the exception of premium revenue recognised in accordance with paragraph 5.1, all revenues are recognised and disclosed before the effects of any transfers to or from life insurance liabilities. Disclosure of the effects of transfers to and from life insurance liabilities is required by paragraph 14.1.1(e).

In accordance with the principles embodied in this Standard, with the exception of claims expense recognised in accordance with paragraph 5.1, all expenses are recognised and disclosed before the effects of any transfers to or from life insurance liabilities. Disclosure of the effects of transfers to and from life insurance liabilities is required by paragraph 14.1.1(e).

To disclose and explain the expenses arising from life insurance contracts, life insurers would normally disclose:

(a) outwards reinsurance expense;

(b) operating expenses:

(i) claims expense;

(ii) policy acquisition expenses, separated into material components including commission;

(iii) policy maintenance expenses; and

(iv) investment management expenses; and

(c) the basis for the apportionment of operating expenses between:

(i) life insurance contract acquisition;

(ii) life insurance contract maintenance;

(iii) investment management expenses;

(iv) life investment contract acquisition;

(v) life investment contract maintenance; and

(vi) other expenses.

When applying paragraphs 14.1.1(c) and 14.1.1(d) and disclosing the process used to determine assumptions, quantified disclosure of assumptions and the effect of changes in assumptions, the life insurer would normally show the impact of changes in assumptions on future profit margins and life insurance liabilities. The assumptions that would normally have the greatest effect on the measurement of recognised amounts described in paragraph 14.1.1(b) are:

(a) discount rates and inflation rates;

(b) profit carriers used for each major product group;

(c) future maintenance and investment management expenses, the rate of inflation applicable to them and any automatic indexation of benefits and premiums;

(d) rates of taxation;

(e) mortality and morbidity, by reference to the identity of the tables;

(f) rates of discontinuance;

(g) surrender values;

(h) rates of growth of unit prices in respect of unit-linked benefits;

(i) rates of future supportable participating benefits; and

(j) the crediting policy adopted in determining future supportable participating benefits.

When applying paragraph 14.1.1(b) and disclosing the recognised liabilities arising from life insurance contracts, life insurers would normally disclose the following components of life insurance liabilities:

(a)            future policy benefits, including participating benefits;

(b)            balance of future expenses;

(c)            planned margins of revenues over expenses;

(d)            future charges for acquisition costs; and

(e)          balance of future revenues.

When a life insurer is presenting the disclosures required by paragraphs 14.1.1(c) and 14.1.1(d) the insurer determines the level and extent of disclosure that is appropriate having regard to its circumstances and the qualitative characteristics of financial statements under the Conceptual Framework for Financial Reporting (as identified in AASB 1048 Interpretation of Standards).

Notwithstanding paragraph 14.1.7, in respect of AusCF entities, when a life insurer is presenting the disclosures required by paragraphs 14.1.1(c) and 14.1.1(d) the insurer determines the level and extent of disclosure that is appropriate having regard to its circumstances and the qualitative characteristics of financial statements under the Framework for the Preparation and Presentation of Financial Statements (as identified in AASB 1048 Interpretation of Standards).