Income Statement – P&C Example (PAA)
The Income Statement or “Statement of Financial Performance” under IFRS 17 is a drastic divergence from IFRS 4. This course will teach you about the new sections and what is contained in each of the new Income Statement sections, as seen from the perspective of a P&C Insurer applying the PAA.
IFRS 17 Income Statement
- Fundamental change to the income statement under IFRS 17
- Very different view and presentation
- Different split of Expenses
- Splits Income Statement into Sections:
- Insurance Service Result
- Investment Result
- Other Result / Income Taxes
Example Assumptions
Simplifying Assumptions for our Example:
- All business is subject to the PAA
- All acquisition expenses (commissions, premium taxes, etc.) are expensed as incurred
- Other expenses split between attributable and non-attributable
- All groups of contracts are profitable
- No Other Comprehensive Income (OCI)
Income Statement IFRS 17
| Income Statement | |
| Insurance Service Result | |
| Insurance Revenue | 1,750,000 |
| Insurance Service Expense | (1,285,000) |
| Net Reinsurance Expense | (410,000) |
| Insurance Service Result | 55,000 |
| Investment Result | |
| Net Investment Income | 875,000 |
| Net Finance Expense | (665,000) |
| Net Investment Result | 210,000 |
| Other Result | |
| Other Revenue | 250,000 |
| Other Expenses | (375,000) |
| Other Result | (125,000) |
| Income Tax | (39,200) |
| Net Income (Loss) | 179,200 |
Coming soon
Insurance Service Result
| Income Statement | |
| Insurance Service Result | |
| Premium Receipts Under the PAA | 1,750,000 |
| Total Insurance Service Result | 1,750,000 |
| Insurance Service Expenses | |
| Actual Claims | (875,000) |
| Actual Expenses | (180,000) |
| Amortization of Insurance Acquisition Expenses | (175,000) |
| Changes in Estimates in LIC Fulfilment Cash Flows | 25,000 |
| Experience Adjustments on the LIC | (80,000) |
| Total Insurance Service Expenses | (1,285,000) |
| Insurance Service Result (before Reinsurance) | 465,000 |
Premium Receipts Under PAA: this represents the actual premiums received and earned during the period.
Actual Claims = New Claims Paid + New IBNYR Setup + New Case Reserves/IBNER Setup
Actual Expenses: Directly Attributable Expenses
Actual Acquisition Expenses Paid: Expenses were assumed to be expensed as incurred, so this represents the actual acquisition expenses paid in the period.
Changes in Estimates in LIC: This represents any non-financial assumption changes that were made in the period to the LIC.
Experience Adjustments on the LIC: This represents the Expected IBNR Claims/Expenses minus the Actual IBNR Claims/Expenses.
Net Expense From Reinsurance
| Income Statement (Continued) | |
| Allocation of Reinsurance Paid | (875,000) |
| Total | (875,000) |
| Amounts Recovered from Reinsurance | |
| Actual Claims | 437,500 |
| Changes in Estimates in LIC Fulfilment Cash Flows | (12,500) |
| Experience Adjustments on the LIC | 40,000 |
| Total | 465,000 |
| Net Expense from Reinsurance | (410,000) |
Actual Claims: This represents the actual claims recovered from reinsurers during the period
Changes in Estimates in LIC: This represents any non-financial assumption changes that were made in the period to the LIC.
Experience Adjustments on the LIC: This represents the Expected IBNR Claims/Expenses minus the Actual IBNR Claims/Expenses.
Insurance Service Result
| Income Statement | |
| Insurance Service Result | |
| Insurance Revenue | 1,750,000 |
| Insurance Service Expense | (1,285,000) |
| Insurance Service Result (before Reinsurance) | 465,000 |
| Net Reinsurance Expense | (410,000) |
| Insurance Service Result | 55,000 |
Investment Result
Actual Investment Income:
- Interest income, coupon/dividend income
- Change in market value of actual assets
Finance Expense
- Expected interest accretion on the BEL, RA and CSM
- Change in Liabilities (BEL & RA) due to changes in IFRS 17 yield curve during the period
| Income Statement (Continued) | |
| Actual Investment Return | |
| Interest Earned | 15,000 |
| Coupon Income Earned | 125,000 |
| Dividends Received | 20,000 |
| Changes in Market Value in the Period | 715,000 |
| Total | 875,000 |
Coming soon
| Income Statement (Continued) | |
| Actual Investment Return | 875,000 |
| Insurance Finance Income or Expense from Insurance Contracts | |
| Interest Accreted on the Best Estimate Liability | (235,000) |
| Interest Accreted on the Risk Adjustment | (45,000) |
| Changes in Discount Rates in the Period | (1,050,000) |
| Total | (1,330,000) |
| Insurance Finance Income or Expense from Reinsurance Contracts | |
| Interest Accreted on the Best Estimate Liability | 117,500 |
| Interest Accreted on the Risk Adjustment | 12,500 |
| Changes in Discount Rates in the Period | 525,000 |
| Total | 665,000 |
| Net Investment Result | 210,000 |
Coming soon
| Income Statement (Continued) | |
| Actual Investment Return | 875,000 |
| Insurance Finance Income or Expense (Net) | (665,000) |
| Net Investment Result | 210,000 |
Other Result and Income Taxes
Other Result:
- Other Income (service fee income, etc.)
- Other Expenses (non-attributable expenses)
Income Taxes
- Income Taxes (current / deferred)
| Income Statement (Continued) | |
| Other Result | |
| Other Revenue | 250,000 |
| Other Expenses | (375,000) |
| Other Result | (125,000) |
| Income Tax | (70,000) |
Income Statement IFRS 17
| Income Statement | |
| Insurance Service Result | |
| Insurance Revenue | 1,745,000 |
| Insurance Service Expense | (1,285,000) |
| Net Reinsurance Expense | (410,000) |
| Insurance Service Result | 55,000 |
| Investment Result | |
| Net Investment Income | 875,000 |
| Net Finance Expense | (665,000) |
| Net Investment Result | 210,000 |
| Other Result | |
| Other Revenue | 250,000 |
| Other Expenses | (375,000) |
| Other Result | (125,000) |
| Income Tax | (39,200) |
| Net Income (Loss) | 179,200 |
Coming soon