Good afternoon, everyone! I am Lady Mae Agnes Dinoy.

And at this point I am going to

continue on the discussion in relation to Insurance Contracts.

The previous reporter already introduced to you the overlay approach, Now the question
is when may an entity elect or choose overlay approach?
The answer is dapat ila sang gi apply ang PFRS 9 katong Financial Instruments after
applying the temporary exemptions. Pero unsa maning temporary exemption?

A "temporary exemption" typically refers to a provision nga iallow ang entity to delay the
implementation or compliance with certain requirements of the standard (PFRS 9) for a
limited period of time. Naa pod ni criteria on to avail the temporary exemption. Such as
dapat wala pajud sila ka apply sa PFRS 9 and dapat ilang mga activities are
predominantly connected with insurance.

To proceed, if nahuman na silag apply sa mga requirements sa PFRS 9 regarding the

presentation of gains and losses on financial liabilities designated as FVTPL then the
entity may also apply the overlay approach.

Once the entity elects the overlay approach, the next step or question is unsa nga mga
financial assets ang allowed sa overlay approach? There are certain conditions to
consider the financial asset eligiblt for the overlay approach:

First, The financial assets are not held in respect of an activity that is unconnected with
contracts in the scope of PFRS 4. Thus, a company is not permitted to apply the
overlay approach to financial assets connected with non-insurance activities, such as
banking activities. Banking primarily involves accepting deposits from customers and
extending credit through loans and mortgages. These activities focus on managing
funds and facilitating transactions rather than providing protection against specific risks,
which is a primary function of insurance.

And second financial assets should be measured at FVTPL under PFRS 9.

Now, let’s take for intance qualified ang entity and their financial assets to apply the
overlay approach. What happens next? Unsa may buhaton sa entity? Dire na mosud
ang atong gitawag nga designation of financial assets. Because after applying the
overlay approach,
Sa initial recognition sa financial assets, ang entity pwede makapili kung asa sa ilang
mga financial assets ilang iapply ang overlay approach basta kay mo meet lang sa
katong criteria in designation of financial assets.

Pero what if, in the first place ang financial asset kay dle sya initially designated sa
overlay approach but with the passage of time naka meet na sya sa criteria, pwede ba
nga idesignate na sya as overlay approach since nakameet naman sya sa criteria? The
answer is YES! This provides flexibility for the entity to apply the overlay approach
retrospectively to assets that were previously not eligible. This means they can adjust
their accounting treatment for these financial assets to align with the requirements of the
overlay approach, even though they were initially accounted for differently.

And the entity is required so dapat ang entity kung naa silay mga financial assets nga gi
designate for overlay approach pero wala na nimeet sa criteria then dle na sya
designated for overlay approach. E-de-designate na sya. BUT WHAT HAPPENS
WHEN AN ENTITY DE-DESIGNATE A FINANCIAL ASSET? - - ang balance sa
accumulated other comprehensive income nga related sa katong gi de-designate nga
asset kay e-reclassified to P/L.
An entity should stop applying the 'overlay approach' when its financial assets no
longer meet the same eligibility criteria or when it applies the new insurance contracts
Standard and it is permitted to stop applying the 'overlay approach' at the the beginning
of any annual reporting period before the entity implements the forthcoming insurance
contracts standard. And the change in accounting policy is accounted retrospectively.

Next, we will proceed to the recognition and measurement particularly the liability
adequacy test. In which pfrs 4 defines it as, an assessment of whether the carrying
amount of an insurance liability needs to be increased, based on a review of future cash
flows. In simpliest term, ang kana nga test kay it checks if ang insurance liability ba kay
dle understated or ang iyang related deferred acquisition costs pod ba kay dle
overstated. And how to do this test? E-compare daw ang carrying amount sa insurance
liabilities with current estimates of future cash flows. So if understated gani ang
insurance liability or inadequate sya then the entire deficiency shall be recognized in P/L.

Now, let’s talk about the impairment of reinsurance asset.

Pero unsa diay nang reinsurance asset? It is the cedant’s net contractual rights under a
reinsurance contract. The net amount that the cedant expects to receive from the
reinsurer under the terms of the reinsurance contract. This includes amounts
recoverable for claims paid by the cedant and any amounts due for future claims,
reduced by any amounts the cedant owes to the reinsurer.

When can we say nga na impaired na ang reinsurance asset? Naa duha kabouk: if:
A.There is objective evidence as a result of an event that occurred after initial
recognition of the reinsurance asset, that the cedant may not receive all amounts due to
it under the terms of the contract; and
B.That event has a reliably measurable impact on the amounts that the cedant will
receive from the insurer.

if something happens after the reinsurance asset is initially recognized that indicates
the cedant might not receive all the money it expects from the reinsurer under the terms
of the contract, and if the impact of that event on the amount the cedant will receive is
reliably measurable, then an impairment should be recognized. This impairment reflects
the decrease in the value of the reinsurance asset due to the uncertainty or reduction in
the expected future cash flows from the reinsurer.

Thus, PFRS 4 requires nga if ma impaire na ang reinsurance asset sa cedant, dapat
niyang ireduce ang carrying amount sa maong asset and the impairment loss is
recognized in P/L.