Ind AS 104, Insurance Contracts: The objective of Ind AS 104 is to specify the financial reporting for insurance contracts by any entity that issues such contracts (described as an insurer). In particular, this Ind AS requires:
- limited improvements to accounting by insurers for insurance
- disclosure that identifies and explains the amounts in an insurer’s financial statements arising from insurance contracts and helps users of those financial statements understand the amount, timing and uncertainty of future cash flows from insurance
Ind AS 104
An insurance contract is a contract under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder.
The Standard applies to all insurance contracts (including reinsurance contracts) that the entity issues and reinsurance contracts that it holds and financial instruments that it issues with a discretionary participation feature and Ind AS 107, Financial Instruments: Disclosures, requires disclosure about financial instruments, including financial instruments that contain such features.
The Ind AS exempts an insurer from some requirements of other Ind AS. However, the Ind AS:
- prohibits provisions for possible claims under contracts that are not in existence at the end of the reporting period (such as catastrophe and equalisation provisions).
- requires a test for the adequacy of recognised insurance liabilities and an impairment test for reinsurance
- requires an insurer to keep insurance liabilities in its statement of financial position until they are discharged or cancelled, or expire, and to present insurance liabilities without offsetting them against related reinsurance
The Ind AS permits an insurer to change its accounting policies for insurance contracts only if the change makes the financial statements more relevant and no less reliable, or more reliable and no less relevant. In particular, an insurer may continue any of the following practices, although it may continue using accounting policies that involve them:
- measuring insurance liabilities on an undiscounted
- measuring contractual rights to future investment management fees at an amount that exceeds their fair value as implied by a comparison with current fees charged by other market participants for similar services.
- using non-uniform accounting policies for the insurance contracts of
The Ind AS permits an insurer to change its accounting policies so that it re – measures designated insurance liabilities to reflect current market interest rates and recognises changes in those liabilities in profit or loss. Without this permission, an insurer would have been required to apply the change in accounting policies consistently to all similar liabilities.
The Ind AS requires disclosure to help users understand:
- the amounts in the insurer’s financial statements that arise from insurance
- the nature and extent of risks arising from insurance