ind-as-117-insurance-contracts

Ind AS 117 *
Insurance
Contracts
What it means to
Indian insurers
June 2018
KPMG.com/in
*Exposure Draft
Foreword
International Accounting Standards - Premium volumes will no such as finance, actuary, business
Board (IASB) issued International longer drive the ‘top line’ as and IT will be important as
Financial Reporting Standard (IFRS) investment components and implementation of Ind AS 117
17: Insurance Contracts in May cash received are no longer will require them to work as one
2017. This is a significant change for considered to be revenue. unified team to achieve consistent
insurers across the globe, following - Accounting for options and reporting.
prolonged discussions and debates, guarantees will be more As per the new ED, insurance
and heralds an end to the lack of consistent and transparent. companies are allowed to early
comparability between the financial
Accordingly, the implementation of adopt Ind AS 117 only for the limited
positions and performance of
the new standard would result in: purposes of consolidation by their
insurers in different jurisdictions
parent company. However, since
and with companies in other - Current, explicit and fair the new standard is not notified
industries. The new standard is estimates of future cash flows yet, the consolidation by the parent
expected to significantly enhance
- Discounting rates that reflect company is expected to be based
comparability and transparency in
the characteristics of the on Ind AS 104.
reporting by insurers.
contracts’ cash flows Considering the recent trend of
Keeping in mind the same objective
- Risk adjustments listing and consolidation within
of enhanced transparency in
the insurance sector in India, the
financial statements prepared by Actuarial computations are
implementation of Ind AS 117 is
the insurers in India, The Institute expected to be more complex as
expected to be a major change
of Chartered Accountants of India the standard focusses on greater
programme that would be closely
(ICAI) issued an Exposure Draft (ED) granularity in contract groupings
monitored by stock exchanges,
on Indian Accounting Standard (Ind for valuation purposes. This would
investors and regulators. The IRDAI
AS) 117, Insurance Contracts, which require both insurance entities and
has formed a working committee to
is consistent with IFRS 17. the regulator to take a closer look
examine the provisions of IFRS 17
at the impact on solvency margins,
This is a precursor to its notification and the committee is expected to
pricing and risk management. For
under the Companies Act, 2013 by review the impacts by 30 June 2018.
insurers, the transition to the new
the Ministry of Corporate Affairs
Insurance standard is expected Through this publication, we aim to
(‘MCA’).
to have a notable impact on the highlight the nuances of the new
The Insurance Regulatory and reported numbers, ratios and key insurance standard for life, general
Development Authority of India performance indicators. and reinsurance companies.
(IRDAI), pursuant to circular on
The impact of the new standard
implementation of Ind AS dated
is likely to be more in the life
28 June 2017, advised insurance
insurance business as compared
companies to comply with Ind AS
to the general insurance business.
for accounting periods beginning
However, all insurers are expected
from 1 April 2020 onwards, with
to be equally impacted with
comparatives from the periods
changes in profit recognition
ending 31 March 2020 or thereafter.
and extensive new disclosure Rajosik Banerjee
Presently, Ind AS 104: Insurance Partner and Head
requirements.
Contracts has been included in Financial Risk Management
the set of notified Indian AS and is The changes could significantly KPMG in India
expected to be replaced by Ind AS impact insurers on profitability
117 in due course. pattern, volatility in financial
results, equity levels and level of
Key highlights of ED Ind AS 117 are
transparency about profit drivers.
- Separate presentation of
Ind AS 117 may rewrite the rulebook
underwriting and finance
on financial reporting by insurance
results will provide added
companies and require insurance
transparency about the
sources of profits and quality
companies to focus on aspects
such as data, people, technology
Sai Venkateshwaran
of earnings. Partner and Head
solutions and investor relations.
Co-ordination between functions Accounting Advisory Services
KPMG in India
Contents
Introduction to Ind AS 117 and the Indian insurance landscape 06
Overview of the new insurance standard - Ind AS 117 07
Comparison between Ind AS 104 and Ind AS 117 20
Interaction with other Ind AS 24
Implementation challenges 25
Matters for consideration 28
Glossary 29
Acknowledgements 30
06 | Ind AS 117* Insurance Contracts
Introduction to Ind AS 117 and the

Indian insurance landscape1
The Ministry of Corporate Affairs and deferred the implementation The ED of the standard permits early
(MCA), Government of India had of Ind AS 104 accounting model by adoption. If an entity adopts the
notified the Companies (Indian two years. The deferral is aimed at standard earlier, it shall disclose that
Accounting Standards) Rules, 2015 reducing the burden of additional fact. However, insurance companies
on 16 February 2015. Through its compliance and costs that would are allowed to early adopt the new
press release dated 18 January have to be undertaken by insurance insurance standard only for the
2016, the MCA outlined the road companies, first upon transition limited purpose of consolidation by
map for implementation of Ind AS to Ind AS 104 and then again on the parent company.
by banks, non-banking financial adoption of Ind AS 117
This standard requires all insurance
companies, select all India term ('the standard').
contracts to be accounted for in a
lending and refinancing institutions
However, the IRDAI vide circular consistent manner, benefiting both
and insurance entities.
IRDA/F&A/CIR/ACTS/262/12/2016 investors and insurance companies.
With the introduction of IFRS dated 30 December 2016, requires Ind AS 117 is expected to enhance
17 Insurance Contracts globally insurance companies to submit transparency of reported profits
as a replacement for IFRS 4, quarterly pro forma Ind AS financial through separate presentation of
the Insurance Regulatory and statements. income from underwriting and
Development Authority of India investment.
(IRDAI) reconsidered the timelines
Key principles of the new insurance standard are:
Contracts that are Components Contracts are grouped Current assumptions Profit is recognised as
insurance (and those in the contract into annual profitable should be applied to insurance coverage
that are not) are (including options and non-profitable risk-adjusted cash flows is provided and the
clearly identified. and guarantees) are cohorts (onerous to value contracts, and entity is released from
separated and valued, contracts) for valuation. unearned profit remains risk.
given certain conditions in the liability until it is
are fulfilled. recognised.
Insurance revenue, A higher level of

insurance expenses disclosure to enable
and financing income users to understand
and expenses are and compare insurance
presented separately. companies in a better
way.
1. Insurance Contracts First Impressions IFRS 17, KPMG’s Global IFRS insurance contracts leadership team ,
KPMG International Standards Group, July 2017
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
*Exposure Draft
07
Overview of the new insurance

standard - Ind AS 1172
Scope and definitions
Combination and separation
Level of aggregation and recognitition
Measurement models
General Premium allocation Variable fee

model approach approach
Non participating Contracts with coverage Direct participating

insurance contracts period less than a year contracts
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Presentation and disclosure

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Figure 1: Overview of Ind AS 117
The new standard prescribes three measurement models as elaborated under:

On initial recognition the liability for insurance contracts is
General measured as a sum of:
Measurement • Contractual service margin
Model
• Fulfilment cash flows which comprise:
(Building Block - Estimates of future cash flows;
Approach) - Adjustment to reflect the time value of money i.e. discounting
- Risk adjustment for non-financial risk.
Variant of General Model
Premium
Allocation Simplified measurement model for contracts with coverage period of
Approach one year or less.
(PAA)
Variable Fee Applicable for direct participation contracts which modifies treatment
Approach of contractual service margin as provided under the general
(VFA) measurement model.
The core principles underlying these measurement models are expected to result in major financial
Figure 2: Measurement model transformation for insurers and provide better insights into the financial results for analysts and users.
2. Exposure Draft Indian Accounting Standard (Ind AS) 117, Accounting Standards Board The Institute of Chartered Accountants of India, February 12, 2018; Insurance Contracts First Impressions IFRS 17, KPMG’s Global IFRS
insurance contracts leadership team, KPMG International Standards Group, July 2017
Scope insurance contracts issued by treating such contracts as insurance

the cedant. Even if a reinsurance contracts is to ensure consistency
The new insurance standard contract does not expose the issuer because they typically share similar
applies to: to the possibility of a significant characteristics as that of insurance
1. Insurance contracts; loss, that contract is deemed contracts.
to transfer significant insurance
2. All reinsurance contracts it issues risk if it transfers to the reinsurer Scope exclusion
and holds; and substantially all the insurance risk
Ind AS 117 does not apply to:
3. Investment contracts with relating to the reinsured portions of
discretionary participation features the underlying insurance contracts. 1. Warranties provided by a
it issues, provided the entity also manufacturer, dealer or retailer
Investment contract with
issues insurance contracts. in connection with the sale of its
discretionary participation
goods or services to a customer
Insurance contract is a features is a financial instrument
contract under which: that provides a particular investor 2. Employers’ assets and liabilities
with the contractual right to receive, from employee benefit plans and
• One party - the issuer retirement benefit obligations
as a supplement to an amount not
• Accepts significant insurance subject to the discretion of the issuer, reported by defined benefit
risk from additional amounts: retirement plans
• Another party - the a. That are expected to be a 3. Contractual rights or contractual
policyholder significant portion of the total obligations contingent on the
contractual benefits; future use of, or the right to use, a
• By agreeing to compensate non-financial item
the policyholder if a specified b. The timing or amount of which are
uncertain future event - the contractually at the discretion of 4. Residual value guarantees
insured event adversely the issuer; and provided by a manufacturer, dealer
affects the policyholder. or retailer and a lessee’s residual
c. That are contractually based on:
value guarantees when they are
Insurance risk is a risk other than • The returns on a specified pool embedded in a lease
financial risk, transferred from the of contracts or a specified type
holder of a contract to the issuer. 5. Financial guarantee contracts,
of contract
unless the issuer has previously
The standard is silent on the level • Realised and/or unrealised asserted explicitly that it regards
of significance of insurance risk. investment returns on a such contracts as insurance
However, it does mention that risk specified pool of assets held by contracts and has utilised
will be considered as significant if the issuer or accounting applicable to insurance
and only if an insured event could contracts
cause the issuer to pay additional • The profit or loss of the entity or
amounts that are significant in any fund that issues the contract. 6. Contingent consideration payable
single scenario, excluding scenarios or receivable in a business
Since these contracts do not transfer
that have no commercial substance. combination
insurance risk, they do not meet
Reinsurance contract is a type of the definition of insurance contract. 7. Insurance contracts in which the
insurance contract that is issued These contracts are covered by entity is the policyholder, unless
by an entity (the reinsurer) to Ind AS 117 only if they are issued those contracts are reinsurance
compensate another entity (the by an entity which also issues contracts held.
cedant) for claims arising from insurance contracts. The benefit of
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KPMG in India’s insights

• Significance of insurance risk is to be assessed on a contract by contract basis.
• Present value basis to be used to assess significant insurance risk i.e. , for fixed death benefit, any
contractual terms that delay timely reimbursement to the policyholder can eliminate significant insurance
risk.
• Investment contracts with discretionary participation features (DPF) is covered under Ind AS 117 provided
the entity also issues insurance contracts.
Distinct
Combination and separation goods or
of components from an non-insurance
insurance contract services
Non-distinct Embedded
Investment
A set or series of insurance contracts component
derivative
entered by an entity with the same
or a related counterparty may
achieve, or be designed to achieve,
Distinct
an overall commercial effect. Insurance investment
component component
An insurance contract may contain
one or more components that would
be within the scope of another
standard if they were separate Ind AS 117
contracts e.g. unit linked. Accounting as per Ind AS 117 Accounting as per Ind AS 117 - disaggregation*
The standard provides three different Accounting as per Ind AS 115 Accounting as per Ind AS 109
instances where the component Accounting as per Ind AS 109 * Excluded from insurance revenue and insurance
service expenses in statement of profit or loss
would have to be accounted
separately from that of an insurance Figure 3: Separation of components
contract:
a. Embedded derivatives
b. Distinct investment component
• Investment contract is distinct only if the investment component and the
c. Distinct goods or non-insurance insurance component are not highly inter-related and a contract with
services provided to a policyholder comparable terms is sold, or could be sold, separately in the same market or
e.g. asset management or jurisdiction.
custody services
• Goods or non-insurance services promised to a policyholder are distinct if
The remaining insurance contract the policyholder can benefit from the goods or services either on their own
would have to be accounted as per or together with other resources readily available to the
Ind AS 117 and further separation policyholder.
is not allowed. The following
figure depicts the separation of an • The entity would not be permitted to further separate
insurance contract and its respective the insurance contract apart from the components
accounting under other standards. specifically defined above.
Level of aggregation subject to similar risks and managed possibility of becoming onerous
together e.g. annuities, term subsequently, if any; and
Entities are required to group insurance, endowment assurance
the insurance contracts at the c. Group of the remaining contracts
commencement since it determines Each portfolio is further divided at in the portfolio, if any.
the level at which the insurers would contract inception into a minimum of
An entity is not allowed to include
apply the recognition, measurement, a. Group of contracts that are contracts issued more than one
presentation and disclosure onerous at initial recognition, if year apart within the same group.
guidance. any; Therefore, each portfolio would be
In this regard, the entity identifies disaggregated into annual cohorts or
b. Group of contracts that at initial
portfolio of insurance contracts cohorts consisting of periods of less
recognition have no significant
which would comprise contracts than one year.
Portfolio
Not of contracts
onerous Onerous
Cohort
Cohort
Onerous Residual
year year contracts
1 Cohort 3
Residual Not
contracts year onerous
2 Residual
Onerous
contracts
Not
onerous Figure 4: Portfolio aggregation

• The term ’portfolio’ under Ind AS 117 is used for various
purposes, such as defining insurance acquisition cash flows
and a group of insurance contracts. Consistent application of
defined portfolio is required for various purposes.
• Management judgement is required to identify
insurance and investment contracts with
similar risk. Once it has been identified, further
judgement would be required to determine if it
can be aggregated and measured collectively.
• An entity may choose to divide a portfolio into
more groups if the entity’s internal reporting
provides information at a more detailed level to
make such sub-divisions.
• Aggregation of contracts based on profitability
is likely to result in more granularity in contract
groupings for valuation purposes.
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Timing of recognition • Contractual service margin since insurance contract but is restricted
fulfilment cash flows are measured from repricing the contract to reflect
An entity recognises a group of as at initial recognition; this reassessment, the contract still
insurance contracts it issues from binds the entity and its related cash
the earliest of the following: • Discounting rates used as an input
flows lie within the existing contract’s
to measurement model.
a. The beginning of the coverage boundary. However, if the restriction
period of the group of contracts; has no commercial substance,
Contract boundary
then the contract does not bind the
b. The date when the first payment The contract boundary distinguishes entity. For example, health insurance
from a policyholder in the group the future cash flows that relate contracts may permit an entity to
becomes due; and to existing insurance contracts re-price a contract on the basis
c. For a group of onerous contracts, from those that relate to future of general market experience e.g.
when the group becomes insurance contracts. The morbidity experience. In this case the
onerous. identification of contract boundaries contract boundary may not extend
is important under Ind AS 117 as the beyond the next reassessment date.
For contracts with no contractual measurement of a group of insurance
due date, the first payment is contracts is dependent on the cash Measurement models
deemed to be due from the date it flows falling within the contract
is received. A group of insurance The measurement model defined by
boundary.
contracts includes only those Ind AS 117 outlines a thorough and
contracts which are issued by the The intent of this requirement is coherent framework that provides
reporting date. to include only those cashflows in information regarding many different
the measurement of the contract features of insurance contracts
Determination of timing of which is binding on the company. and the way in which the issuers of
recognition of insurance contracts When an entity has practical ability insurance contracts earn income
is important to determine: to reassess the risks of an existing from them.
The standard prescribes three measurement approaches of insurance contracts:

Measurement models
Premium
01 General model 02 allocation model 03 Variable fee model
Default model under the Optional simplified model Applicable to direct

standard for insurance contracts participating contracts
It is based on the following Many non-life insurance

The changes in fulfillment cash
building blocks: products would fall under this
flows arising from time value of
- Fulfillment cash flows category
money and financial risks is
comprising of estimates considered as part of variable fee
of future cash flows, for future services and
adjustment to reflect time Applicable for contracts wherein
recognised through contractual
value of money and risk measurement of liability under
service margin
adjustment for PAA will not differ materially from
non-financial risks the measurement under general
- Contractual service model or applicable for contracts No interest accretion is required
margin representing with coverage period of one year since the CSM is remeasured for
unearned profit from the or less. changes in financial risks
contract
If the net cash flows result in no

contractual service margin, loss is
recognised immediately
Figure 5: Measurement models

General model Explicit, unbiased,

and probability
Under the general model, the weighted
liability of a group of insurance
contracts is made up of the
following components.
1. The fulfilment cash flows, which Present value of Risk Unearned profit Insurance Contract
represent the risk-adjusted future cash flows + adjustment + (CSM) = Liabilities
present value of the entity’s
}
rights and obligations to the
policyholders, comprising:
• Estimates of future cash Fulfillment Cash flow + Unearned profit
= Insurance Contract
(CSM) Liabilities
flows;
}
• Discounting; and
• Risk adjustment for
non-financial risk.
Liability for Liability for Insurance Contract
incurred claims + remaining coverage = Liabilities
2. The contractual service margin
(CSM), which represents the
unearned profit the entity will Figure 6: Overview of general model
recognise as it provides services
over the coverage period.
1. Fulfilment cash flows: The objective is not to develop a most be needed when the cash flows
A. Future cash flows likely outcome or a more-likely-than- and their probabilities are driven by
not outcome for future cash flows. complex underlying factors – e.g. for
The expected present value of cash flows generated by options inter-
future cash flows is determined by: When considering the full range of
related with the insurance coverage.
possible outcomes, the objective
• Developing a range of scenarios is to incorporate all reasonable and B. Discounting factor
that reflects the full range of supportable information without
possible outcomes, in which Discounting adjusts the estimates of
undue cost or effort in an unbiased
each scenario specifies: expected future cash flows to reflect
way, rather than to identify every
the time value of money and the
–– The amount and timing of possible scenario. Hence, it is not
financial risks associated with those
the cash flows for a particular necessary in practice to generate
cash flows (to the extent that the
outcome; and explicit scenarios when determining
financial risks are not already included
the mean, if the resulting estimate is
–– The estimated probability of in the cash flow estimates).
consistent with this objective.
the outcome; and The discount rates applied to the
Therefore, it could be appropriate to
• applying to each scenario: estimates of expected future cash
use a small number of parameters,
flows:
–– A discount factor to or relatively simple modelling, when
determine the present value; the measurement result is within • Reflect the time value of
and an acceptable range of precision. money, the characteristics of
However, more sophisticated, the cash flows and the liquidity
–– A weighting based on the stochastic modelling is likely to
estimated probability of the
outcome.
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characteristics of the insurance includes when determining the recognised in profit or loss to reflect
contracts; compensation that it requires for the services provided under the
bearing that risk; and group of insurance contracts in that
• Are consistent with observable
period. This amount is determined by:
current market prices; and • The entity’s degree of risk aversion,
reflected by both favourable and • Identifying the coverage units in the
• Exclude the effects of factors
unfavourable outcomes. group;
that affect observable market
prices used in determining the It is important to understand that • Allocating the CSM at the reporting
discount rate, but do not affect the risk adjustment for non-financial date (before recognising any
the future cash flows of the risk considers risks arising from release to profit or loss to reflect
insurance contract. an insurance contract other than the services provided) equally to
financial risk. This includes insurance coverage units provided in the
Discount rates are determined
risk and other non-financial risks e.g. current period and expected to be
on a basis consistent with other
lapse and expense risk. Risks that do provided in the future; and
estimates that are used to measure
not arise from the insurance contract
the insurance contracts. For • Recognising in profit or loss the
e.g. general operational risk are not
example: amount allocated to coverage units
included.
provided in the period.
• Cash flows that do not vary
Risk adjustments for financial risk can
based on the returns on 3. Onerous contract
be included in either the estimates of
underlying items are discounted
future cash flows or in the discount An onerous contract is a contract
at a rate that does not reflect
rate. in which the unavoidable costs
such variability i.e. a risk-free
of meeting the obligations under
rate; 2. Contractual service margin the contract exceed the economic
• Cash flows that do vary based The final step in measuring a group benefits expected to be received
on the returns on any financial of insurance contracts on initial under it. An insurance contract
underlying items are discounted recognition is to determine the is onerous at the date of initial
using rates that reflect that unearned profit, represented by recognition if the fulfilment cash
variability (or adjusted for the the CSM for profitable groups of flows, any previously recognised
effect of that variability and contracts, or the loss component for acquisition cash flows and any cash
discounted using a rate that groups of onerous contracts. flows arising from the contract at
reflects the adjustment made); the date of initial recognition in total
At each reporting date, the CSM
are a net outflow. Loss is recognised
• Nominal cash flows are reflects the profit in the group of
in profit or loss for the net outflow
discounted at a rate that includes insurance contracts that has not yet
for the group of onerous contracts,
the effect of inflation; and been recognised in profit or loss,
resulting in the carrying amount of
because it relates to future service to
• Real cash flows are discounted the liability for the group being equal
be provided.
at a rate that excludes the effect to the fulfilment cash flows and the
of inflation. Therefore, the CSM is adjusted in contractual service margin of the
each reporting period for an amount group being zero.
C. Risk adjustment factor
Ind AS 117 does not prescribe Future cash flows
methods for determining the
risk adjustment for non- financial
1 In-flows
risk. Therefore, management

judgement is necessary to
determine an appropriate risk
adjustment technique to use.
Loss
The risk adjustment for non- component
financial risk reflects:
Out-flows
the degree of diversification
•
benefit that the entity
3 Risk adjustment
2 Discounting
Figure 7: Initial measurement-Onerous contracts
The loss component on onerous for each period, consistent allocation acquisition cash flows that have
groups would be reversed in methodology is to be applied. been recognised in profit or loss over
profit or loss as a reduction in the expired portion of the coverage
Premium Allocation
insurance service expenses and period based on the passage of time.
Approach
is consequently excluded from
PAA assumes that recognising the
revenue. Under Premium Allocation Approach
contract’s premium over the coverage
(PAA), the total carrying amount of a
After the recognition of loss period provides similar information
group of insurance contracts is made
component of liability for remaining and profit patterns to those provided
up of:
coverage, subsequent changes in by recognising insurance contract
fulfilment cash flows of the liability • A liability for remaining coverage, revenue measured using the general
for remaining coverage is allocated which represents the fulfilment model.
on a systematic basis between: cash flows relating to future
service that will be provided under
–– Loss component of the
the contract in future periods and
liability for remaining
the CSM; and
coverage and
• A liability for incurred claims, Generally, PAA shares some similarities
–– The liability for remaining with the current accounting model for
which represents the fulfilment
coverage, excluding the loss short-duration contracts. However, some
cash flows related to past service
component. of the specific guidance in Ind AS 117
for claims and expenses already
This systematic allocation shall incurred. introduces new practices
result in the total amounts and challenges, even for
Under PAA, the general model may entities that currently use
allocated to the loss component
be simplified for certain contracts to a similar methodology.
being equal to zero by the end of
measure the liability for remaining
the coverage period of a group
coverage. Generally, PAA measures
of contracts. Ind AS 117 does not
the liability for remaining coverage
prescribe any methodology for
as the amount of premiums received
systematic allocation of changes
net of acquisition cash flows paid,
in fulfillment cash flows. However,
less the amount of premiums and

General Measurement Model under
Ind AS 117 is a completely new way of
recognising insurance liability in the Premium
General Allocation
financial statements. The recognition Model Approach
of CSM and its amortisation over the
coverage period is likely to significantly
change the way profit CSM
is recognised for a long Liability for Simplified liability
Risk adjustment measurement based
remaining
duration life insurance coverage Discounting on unearned
contract. premium
Future cash flows
Risk adjustment Risk adjustment
Liability for Discounting Discounting

incurred claims
Future cash flow Future cash flow
Figure 8: Comparison of general model with premium allocation approach
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Variable Fee Approach

The Variable Fee Approach (VFA)
modifies the treatment of CSM
under the general measurement
model to accommodate direct
participating contracts.
Under VFA, the general
measurement model is applied Variable Fee
General Model
on initial recognition of direct
Approach
participating contracts in the same
way as it is applied for contracts
without direct participation Changes in the Recognised
fulfilment cash immediately in the Regarded as part of
features. As for subsequent the variability of the
flows arising from statement(s) of
measurement, differences arise fee for future service
time value of financial performance
within the treatment of the money and as insurance finance and recognised in the
CSM, which includes specific financial risks. income or expense. CSM.
modifications that reflect
the specific nature of direct
participating contracts.
No explicit interest
The following table shows accretion is required
the primary measurement Interest rate Interest rate since the CSM is
differences between the general accreted to the determined on initial effectively
CSM. recognition. remeasured when it
measurement model and the
variable fee approach. is adjusted for
changes in financial
risks.
Figure 9: Comparison of general model with variable fee approach

• Under the current accounting policies the revenue generated from ULIP contracts generally increases
over time. For example, if the unit fund increases annually, then the Fund Management Charges (FMC)
charged to policyholders that are based on the returns of the underlying items is expected to increase
over time, as more funds are managed over time.
• Under the variable fee approach, the expected profitability of the contract i.e. the CSM includes the
entity’s share of cash flow expectations related to funds that are expected to be received in the future.
This means that the CSM reflects the expected FMC for the funds that have not yet been received by the
entity. As the CSM is recognised in profit or loss as services are provided, this might result in a larger
amount of expected charges being recognised in the early periods of the contract than under current
practice.
Acquisition cost Reinsurance contracts –– Entity shall additionally include

in the estimates of the
Insurance acquisition cash flows The initial recognition of reinsurance present value of the future
arise from selling, underwriting contracts held would depend upon cash flows the effect of any
and starting a group of insurance the coverage period: non-performance risk by the
contracts. These cash flows need issuer of the reinsurance
to be directly attributable to a contract, including the effects
portfolio of insurance contracts
to which the group belongs. Such KPMG in India’s insights of collateral and losses from
disputes.
cash flows include cash flows • Insurance acquisition cash flows
that are not directly attributable would be allocated over the period of –– The risk adjustment for non-
to individual contracts or groups premium recognition. financial risk transferred by the
of insurance contracts within the holder to the issuer should also
portfolio. Insurance acquisition • If the coverage period of each be considered.
cash flows: contract in the group on initial
recognition is one year or less, then –– For reinsurance contracts held,
• Can arise internally e.g. in the an entity may choose to recognise an entity shall recognise net
sales department or externally insurance acquisition cash flows as cost or net gain on purchasing
e.g. by using external sales an expense when they are incurred. the group of reinsurance
agents. contracts held as part of CSM
• Recognising insurance acquisition unless the net cost relates to
• Include not only the incremental cash flows paid as assets until the events that occurred before
costs of originating insurance related group of insurance contracts the purchase of the group of
contracts, but also other direct has been recognised reinsurance contracts, in which
costs and a proportion of the would mean these cash case, the entity shall recognise
indirect costs that are incurred in flows are not recognised such a cost immediately in
originating insurance contracts. immediately as an profit or loss as an expense.
Under Indian GAAP, insurance expense.
–– Changes in fulfilment cash
companies recognise all acquisition flows that result from changes
costs as an expense when they in the risk of non-performance
are incurred. Under Ind AS 117, by the issuer of a reinsurance
insurance acquisition cash flows contract held do not relate to
are included in the measurement future service and shall not
of the insurance liability, thereby –– For contracts that provide adjust the contractual service
reducing the CSM recognised on proportionate coverage at the margin.
initial recognition. For short-term beginning of coverage period
insurance contracts (with coverage of the group of reinsurance –– CSM on initial recognition
period of less than one year), the contracts or at initial recognition for a group of reinsurance
insurer may choose to expense any of any underlying contract contracts represents a net cost
insurance acquisition cash flows as whichever is later. or net gain from purchasing
and when incurred. reinsurance.
–– In all other cases from the
Under general measurement commencement of the
approach, an entity is required to coverage period of the group of
allocate part of the premium to reinsurance contracts held.
recover acquisition costs, so that
Measurement requirements for
both the costs and the related
reinsurance contracts held and
revenue are recognised over the
issued are slightly different. Below
same periods and in the same
is the summary of measurement
pattern, based on the passage of
requirements specific to reinsurance
time.
contracts held:
*Exposure Draft
17
CSM at previous reporting date 12
+ Effects of new contracts added to the group
+/- Interest accreted on the CSM during the period

CSM at
reporting = Changes in fulfilment cash flows
date +/- relating to future service*
Effects of currency exchange

+/- differences on the CSM
- Amount of CSM recognised in profit or loss

because of the services received during the period
*Unless the change results from a change in the fulfilment cash flows allocated
to a group of underlying insurance contracts that does not adjust its CSM.
Figure 10: CSM subsequent measurement for a reinsurance contract

• Determination of coverage period is important for initial recognition. Detailed evaluation of contractual terms
relating to reinsurance commission should also be considered.
• Consistent assumptions should be used for measurement of reinsurance contracts held and their underlying
insurance contracts.
• Reinsurance contracts held cannot be onerous.
Insurance contracts issued and reinsurance contracts held

acquired (unless the PAA applies) as if it entered
into the contracts at the date of the KPMG in India’s insights
Insurance contracts issued or transaction.
reinsurance contracts held in a Different accounting
transfer of insurance contracts The consideration received or paid for treatment for similar contracts
that do not form a business or the contracts acts as a proxy for the depending on whether
in a business combination, are premiums received. However, it would they were originally
accounted as if they were issued exclude any consideration received or issued by
by the insurer on the date of the paid for any other assets and liabilities the entity or acquired.
transaction. The entity identifies acquired in the same transaction.
the groups of contracts acquired In a business combination, the
based on the level of aggregation consideration received or paid is the
requirements and determines fair value of the contracts at that date.
the CSM for insurance contracts
19 | Ind AS 117*
18 117 Insurance
InsuranceContracts
Contracts- 2018
Derecognition and
modification
An entity derecognises an
insurance contract when, and only
when:
a. It is extinguished, i.e. when
the obligation specified in the
insurance contract expires or is
discharged or cancelled Derecognition criteria met due to modification:
b. Contract is modified and subject
to certain criteria
If the contract modification does
not result in derecognition, it shall
be accounted for as a change in
Modified contract Modified contract Modified contract
estimates of fulfillment cash flows. would have had
would have been would have been
Contract modification is said to excluded from the substantially included in a different
scope of Ind AS 117 different contract group of contracts
apply when the terms of contract
boundary
are modified by way of an
agreement between the parties
or by way of change in regulation.
The exercise of a right included Entity would have Modified contract no Eligibility of
in the terms of a contract is not a separated different longer meets premium allocation
components from host definition of insurance approach is no
modification. insurance contract contract with DPF longer met
Figure 11: Derecognition criteria

• Derecognition as a result of a contract being transferred to a third party can result in adjustment of contractual
service margin for the difference between adjustment to fulfilment cash flows and premium charged by a third
party.
• Contracts derecognised from a group of contracts would not result in direct recognition of profit or loss as the
change in fulfilment cash flows adjusts the CSM of the group of contracts.
*Exposure Draft
1920
Transition requirement Retrospective method is the

preferred choice at the time of
Ind AS 117 has specified three transition unless it is impracticable.
broad transition arrangements The standard also permits use of
for recognising the existing set of modified retrospective and fair value
contracts. approach.
a. Identify, recognise and measure each

group of insurance contracts as if Ind
AS 117 had always applied;
Retrospective b. Rerecognise any existing balances that

would not exist had Ind AS 117 always
applied; and
Impracticable
c. Recognise any resulting net

difference in equity.
Modified Retrospective Or Fair Value Approach
Determine the contractual service margin or

Maximise the use of information that would loss component of the liability for remaining
have been used to apply a fully retrospective coverage at the transition date as the
approach, but need only use information difference between the fair value of a group
available without undue cost or effort of insurance contracts at that date and the
fulfilment cash flows measured at that date
Transition will be a challenging exercise. Entities will first need to evaluate whether full retrospective application
is practicable. If it is not, then they will need to go through the different choices available on the approach to
apply for each relevant group of contracts. The availability of relevant information is key to these assessments.
Figure 12: Transition approaches
18 | Ind AS 117
20 117*Insurance
InsuranceContracts
Contracts- 2018
Comparison between
Ind AS 104 and Ind AS 1173
Ind AS 104 Ind AS 117
Contract classification - Investment contract or insurance contract
Standard requires classification of contracts between Similar to Ind AS 104 except that Ind AS 117 requires
insurance and investment, based on the significance of ’significant insurance risk’ test would be based on
insurance risk included in the contract design. present value of future potential cash flows of a
Contracts with significant risk will be considered as particular contract not on nominal value.
insurance contracts which are governed under Ind AS Contracts containing deferred payment features may
104, whereas contracts with insignificant risk will be fail the ’significant insurance risk’ test if future potential
considered as investment contracts are governed under cash flows need to be considered to compute present
Ind AS 109. value.
Standard does not provide any quantitative guidance for
assessing the significance of insurance risk.
Insurance risk is significant if, and only if, an insured
event could cause an insurer to pay significant
additional benefits under any scenario.
Embedded derivative
Ind AS 104 requires an entity to separate embedded Similar to Ind AS 104 except that under Ind AS 117,
derivatives from their host contract, measure them at an entity may need to assess if surrender feature in
fair value and include changes in their fair value in profit the contract will meet the definition of an embedded
or loss. derivative as per Ind AS 109.
The standard applies to derivatives embedded in an
insurance contract unless the embedded derivative is
itself an insurance contract.
For example - Payments under a derivative are life –
contingent if they are contingent on death or contingent
on survival.
As an exception, an insurer need not separate, and
measure at fair value, a policyholder’s option to
surrender an insurance contract for a fixed amount.
3. Exposure Draft Indian Accounting Standard (Ind AS) 117, Accounting Standards Board The Institute of
Chartered Accountants of India, February 12, 2018; Insurance Contracts First Impressions IFRS 17, KPMG’s
Global IFRS insurance contracts leadership team , KPMG International Standards Group, July 2017
*Exposure Draft
21
19

Deferred Acquisition Cost (DAC)
For insurance contracts, insurance companies in India Measurement approach of the insurance liability under
usually expense acquisition costs on an accrual basis Ind AS 117 also includes insurance acquisition cash
since gross premium valuation method is used for flows on initial recognition. On initial recognition, CSM is
valuation of liabilities. recognised net off insurance acquisition cash flows.
For investment contracts, DAC may be required to be This approach allocates the insurance acquisition cost
recognised and amortised as per the future revenue in the same period and pattern in which revenue is
margins. recognised.
Additionally, asset recoverability test or the separation
of acquisition cash flows between successful and
unsuccessful efforts in obtaining new business is not
required under Ind AS 117.
Ind AS 117 provides a policy choice for deferment of
acquisition costs in case where the contract term is 12
months or less.
Unbundling of insurance contract
Ind AS 104 requires the deposit component within an Ind AS 117 retains the principle of unbundling labeled
insurance contract to be unbundled and accounted for as ’separation and disaggregation’.
as per Ind AS 109. Key exceptions are:
Standard provides guidance on circumstances where an • Voluntarily separation is not permitted; and
insurer may be required, permitted or prohibited from
unbundling the deposit component. • Risk riders forming part and issued with the
insurance contract might not be required to be
Unbundling is required if both of the following unbundled.
conditions are met:
Investment components which are ’distinct’ should be
1. The insurer can measure the deposit component recorded separately and accounted as per Ind AS 109.
separately, and
Investment component which are non-distinct
2. Insurer’s accounting policies do not otherwise require (i.e. the amount policyholders will receive from the
it to recognise all obligations arising from the deposit insurer regardless of occurring of insured event) are
component. disaggregated.
Unbundling is permitted, but not required, if: Accordingly, any premiums and claims amounts
The insurer can measure the deposit component related to non-distinct investment component would
separately from the insurance component, but its be recorded in the balance sheet, not in profit and loss
accounting policies already require it to recognise account.
all rights and obligations arising from the deposit
component.
Unbundling is prohibited if:
The insurer cannot measure the deposit component

separately
Liability Adequacy Test
Ind AS 104 requires an insurance company to carry out Under Ind AS 117, ’onerous contracts’ recognition test
a test to ensure adequacy of the insurance liabilities needs to be applied instead of Liability Adequacy Test
using current estimates of future cash flows under its (LAT).
insurance contracts. ’Onerous contracts’ recognition test is expected to be
Adequacy of liabilities needs to be tested specially in the measured at a more granular level in comparison to
areas of liabilities kept for guaranteed components. LAT. This could lead to recognition of loss for certain
contracts.
23 | Ind AS 117*
22 117 Insurance
InsuranceContracts
Contracts- 2018

Reinsurance assets and liabilities
Insurance liabilities/policyholder liabilities, are required The general measurement model introduces significant
to be calculated gross of reinsurance with reinsurance changes to the current practice for insurance contracts
receivables being recognised separately as reinsurance issued, which are also relevant to reinsurance contracts
assets. held such as:
Reserving may be required gross of reinsurance with a a. More independent fulfilment cash flow
separate recognition of reinsurance assets. measurements
Impairment test needs to be performed on the b. Reinsurance gain or loss is recognised over the
reinsurance assets on each reporting date. reinsurance coverage period
c. Reinsurance asset impairment included in the
measurement model
Investment contracts with DPFs
All entities are required to apply Ind AS 104 to financial Under Ind AS 117, the scope is limited to investment
instruments with DPFs, regardless of whether they also contracts with DPFs issued by entities that also issue
issue insurance contracts. insurance contracts.
Investment contracts with DPFs issued by entities
that do not issue insurance contracts are in the scope
of Ind AS 32 Financial Instruments: Presentation, Ind
AS 107 Financial Instruments: Disclosures and Ind AS
109.
New business issued and business in force comparison
Disclosure about new business issued and business in Ind AS 117 requires entities to disclose about:
force comparison is not required. • New contracts issued during the period. This
disclosure would provide insight regarding
–– The level of aggregation applied, into the
profitability and attributes of these contracts; and
–– Growth of an entity’s insurance business.
• Entity's expectation with respect to CSM
recognition in future periods. This disclosure would
provide details regarding the profitability pattern
expected in future periods.
*Exposure Draft
2324

Recognition of discount rate
Under Ind AS 104, change in insurance liability due to Under Ind AS 117, choice is available with the entity
discount rate is recognised in profit and loss. either to recognise change in discount rates in profit
and loss or through Other Comprehensive Income
(OCI).
Presentation
Amounts recognised in the statement of profit or loss Amounts recognised in the statement of profit or loss
include: and OCI are disaggregated into an insurance service
1. Gross premium with reinsurance recoveries and result comprising insurance revenue and insurance
reinsurance payments shown separately; service expenses, and insurance finance income or
expense.
2. Investment income and net gain/loss on fair value
changes and gain/loss on derecognition of financial Insurance revenue and insurance service expenses
assets at amortised cost; presented in profit or loss exclude any investment
components - i.e. even though premiums charged may
3. Segregate benefits/incurred claims and change in contain investment components, these investment
insurance contract liabilities; components do not represent consideration for
Acquisition costs as an item of expense. providing services and are not included in the insurance
revenue.
Income or expense from reinsurance contracts held
is presented separately from expense or income from
insurance contracts issued.
Interaction with other Ind AS4
Ind AS 117 and Ind AS 109 • The internal approach to rather than by making cash
accounting mismatches in payments to the customer; and
Assets of insurers (and some the financial statements. For
liabilities) will be measured • The insurance risk transferred by
insurance companies that prefer
under the guidance of Ind AS 109, the contract arises primarily from
less volatility in the profit and loss
which provides classification and the customer’s use of services
that arises between insurance
measurement choices such as rather than from uncertainty over
liability and the assets that
fair value through profit and loss the cost of those services.
support it are likely to consider
(FVTPL), fair value through OCI options that allow volatility to be
(FVOCI) or amortised cost. The Ind AS 117 and Ind AS 12
presented in the OCI.
implementation of Ind AS 109 While estimating the expected
and Ind AS 117 has to be in sync Ind AS 117 and Ind AS 115 cash flow for existing insurance
to reduce volatility between value contracts, the income tax payment
of assets and liabilities. Under Ind AS 117 is for insurance contracts
and receipt that an insurer does not
Ind AS 117, entities can choose to and its application is not limited to
pay or receive in a fiduciary capacity,
disaggregate insurance finance entities that are regulated as insurers.
shall be excluded. Such payment and
income or expenses between profit There are instances where the
receipt are recognised, measured
or loss and other comprehensive risk retained by the manufacturer/
and presented when applying Ind AS
income (OCI). The accounting policy dealers/ service provider in a fixed
12 Income Tax.
choice made by the insurer will fee service contract, meets the
depend on the application of the definition of insurance contracts.
designation options under Ind AS The entity may choose to account for
109. The assessment is necessary such contracts as per Ind AS 115 if
to eliminate or significantly reduce the following conditions are satisfied,
the mismatches between the this choice is irrevocable.
measurements used for the assets • The entity does not reflect an
held and the measurement of liability assessment of the risk associated
that is supported by those assets. with an individual customer in
For achieving the same, the insurer setting the price of the contract
has to consider: with that customer;
• The expected classification and • The contract compensates the
measurement of financial assets customer by providing services,
under Ind AS 109
4. Exposure Draft Indian Accounting Standard (Ind AS) 117, Accounting Standards Board The Institute of Chartered Accountants of India, February 12, 2018;
Insurance Contracts First Impressions IFRS 17, KPMG’s Global IFRS insurance contracts leadership team , KPMG International Standards Group, July
2017
*Exposure Draft
25
Implementation
challenges 5
act
Bu
mp
si nes
al I
• Require adjustments to the • Adopting actuarial
s Im
tion
performance management and key modelling as per
performance indicator framework era requirement of Ind AS
pac
• Increased demand for reconciliation 117 pertaining to level of

between multiple regulatory aggregation, fulfilment
Op
t
requirement and financial statements cash flow at granular

prepared as per Ind AS 117 level, risk adjustment
methodology and CSM.
• Formulate appropriate methods to
explain changes in the presentation • Model validation
of financial results and complexity • Controls to determine
in calculation, to capital market and and place for a)
regulator financial reporting; and b)
• Communication with investors during regulatory requirement
transitions highlighting the impact
due to change in gap and related
impact on business performance
Key Impact
• Assess the organisational governance • More dependency

policy frameworks for the development, on technology when
release, ongoing monitoring and use implementing Ind AS
of the appropriate tools including 117 and Ind AS 109
approval, implementation, use and audit is likely to transform
processes. their IT operation to
• Perform a gap analysis based on outfit business goals,
regulatory requirements and better dynamics, accounting
Sys
and regulatory pressures.

e
practices.
anc
tem
• Draft observations on where model

governance process could be improved.
ern
Imp
• Draft recommendations on how to

Gov
implement improvements.
act
Figure 13: Impact of new

insurance standard
5. Insurance Contracts First Impressions IFRS 17, KPMG’s Global IFRS insurance contracts leadership team , KPMG
International Standards Group, July 2017
27 | Ind AS 117*
26 117 Insurance
InsuranceContracts
Contracts- 2018
Financial reporting system as usual and in the planning/ analysis and reporting, centralised
budgeting process. assumptions, controlled and
Ind AS 117 represents a major documented data feeds and
change from the current accounting New data, systems, increased automation. The entity
and reporting practice for insurance processes and control needs to build reusable tools and
contracts. Some of the key demands devise a methodology for data feeds
accounting and reporting changes and data validation.
posing significant operational Ind AS 117 requires insurers to
challenges include accounting maintain data at individual contract
level and would require changes in
Risk Management
for onerous contracts, spreading Framework
of acquisition costs, dealing the entity’s own procedure such that
with products with embedded sufficient statistically credible data Ind AS 117 requires an insurer to
guarantees benefits, fulfilling is captured and available to enable disclose information that focusses
additional data requirements, an entity to measure liabilities as on the insurance and financial risks
transition reporting on inception required by the new standard. The (typically credit risk, liquidity risk
day, life insurance valuation method requirement of a new measurement and market risk) to enable users of
changes and interaction with model for insurance contracts its financial statements to evaluate
Ind AS 109. The insurer needs requires an entity to combine the the nature, amount, timing and
to assess the pros and cons of accounting, actuarial, IT and data uncertainty of future cash flows. In
disaggregation policy choice i.e. management system. The new data addition, insurers have to assess
to present the insurance finance and updated systems and processes the information about concentration
income or expense in profit or loss will pose a challenge given the of risk and sensitivity analysis to
or disaggregate between profit long time horizon over which many changes in risk exposure.
or loss and OCI so that financial insurers operate and the legacy
To cater to these requirements, a
statement present, relevant and systems that many still use. Entities
robust risk management policy
reliable information to the readers. will also have to upgrade existing
will need to be in place to identify,
controls for business as usual after
The requirement of Ind AS 117 measure and monitor the risk factors
the transition.
will require a plan for the finance from one period to another.
systems architecture aligned Actuarial Model
with the actuarial framework and
The new standard requires
supported by development of a
standardising actuarial processes
new chart of accounts. The entity
and models i.e. globally consistent
would need to capture refreshed
models, a data warehouse for
KPIs and embed them in business
*Exposure Draft
2728
Key issues that insurers and stakeholders

need to consider as they implement Ind AS 117
Financial considerations Considerations beyond Operational considerations
implementation
1. What options should be chosen 5. What communications are
on transition, given the impact 4. What changes might be made to required for analysts and
of such options on the balance the insurer’s business to produce a regulators during a transition and
sheet? stronger, less volatile, and growing subsequently?
business in a post-Ind AS 117 a. How will regulators respond to
2. How might Ind AS 117 change
world as profit drivers change? the new standard?
the way business is managed
and measured in the future, a. How do the impacts of Ind AS b. Are insurers prepared for the
including measurement of 117 interact with other industry potentially greater scrutiny and
a company and executive changes, including reforms challenge that may eventuate,
performance? to distribution arrangements, as investors have the potential
statutory schemes and to obtain a more detailed
a. Does reported top line and
regulatory oversight? understanding of the underlying
bottom line need to be
reinterpreted under Ind AS b. What changes to the business business and a greater ability to
117? might this project facilitate that compare businesses on a global
insurers have not had the time scale?
b. What considerations will
or resources to do in isolation?
be relevant for measuring
executive performance c. As processes need to change to
and remuneration? Should accommodate Ind AS 117, can
changes to KPIs be this also be extended to include
considered in light of Ind AS more data analytics capabilities,
117? automation, machine-learning,
cost savings, efficiency, more
3. What would be the effect on
advanced modelling capabilities
consolidation in case where the
aligned to economic and
parent company is a Bank or
regulatory capital requirements,
corporate having different Ind AS
and simplification?
road map implementation
Matters for consideration
1. Ind AS 117 may change the way the way products are currently team to navigate through these
analysts interpret and compare being priced. challenges.
insurance companies. Separation
3. Given the new measurement 6. Ind AS 117 may trigger a second
of underwriting results and
models and grouping requirement, wave of activity by local tax
investment results in the financial
significant system, data authorities and regulators.
statement will itself give a clearer
warehouses and valuation Implementation plans need to be
picture of the profit drivers.
methodology changes will flexible to accommodate these
2. The industry may experience be needed to support the second-order effects.
significant changes in the reported measurement of the insurance
7. Lastly, preparing for and
top line and bottom line numbers. liabilities going forward.
implementing the new standard
Premium volumes may no longer
4. Given that implementation of will present challenges. It will
drive the ‘top line’ as investment
Risk Based Capital regime may be require substantial effort, and new
components and cash received
considered in India, it becomes or upgraded systems, processes
are no longer considered to be
even more important for the IRDAI and controls. Co-ordination
revenue. Written premiums and
and the industry to find synergies between functions such as
net margin calculations based
and sort out the implementation Finance, Actuarial and IT will be
on current revenue and cost
challenges well in advance. This essential, and it will be important
accounting practices will be
can help reduce complexity and to educate business users and
replaced by complex contract
cost of future reporting. investors on what to expect.
service margin (CSM) calculations
based on actuarial models, risk 5. The human talent required to
adjustments and analysis of operationalise Ind AS 117’s
movements, giving possibly requirements and translate
new insights in key performance theory into practice is significant.
drivers not previously disclosed. Accordingly, companies may
This may also have an impact on have to significantly scale up their
*Exposure Draft
29
Glossary D
Abbreviation Definition
CSM Contractual service margin
DAC Deferred acquisition cost
DPF Direct participating feature
ED Exposure draft
FMC Fund management charges
FVOCI Fair value through other comprehensive income
FVTPL Fair value through profit and loss
GPV Gross present valuation
IASB International Accounting Standards Board
ICAI Institute of Chartered Accountants of India
IFRS International Financial Reporting Standards
Ind AS Indian Accounting Standards
IRDAI Insurance Regulatory and Development Authority of India
IT Information technology
LAT Liability adequacy test
MCA Ministry of Corporate Affairs
OCI Other comprehensive income
P&L Profit and loss
PAA Premium allocation approach
RA Risk adjusting
ULIP Unit linked insurance plan
VFA Variable fee approach
Acknowledgements
We are sincerely grateful to the following people for extending their

knowledge and insights to prepare this publication.
Abhishek Agarwal
Anupriya Rajput
Anjum Tinwala
Anuj Ladha
Binay Surana
Priscilla Sundar
Sharon D’silva
Sagar Lakhani
Samrat Jha
Sourabh Mukherjee
V. Venkataramanan
Venkateswaran Narayanan
31
September 2017
KPMG in India contacts:
Mritunjay Kapur
National Head, Markets and Strategy
Head - Technology Media and Telecom
T: +91 124 307 4797
E: mritunjay@kpmg.com
Akhilesh Tuteja
Partner and Head
Risk Consulting
T: +91 124 307 4800
E: atuteja@kpmg.com
Rajosik Banerjee
Partner and Head
Financial Risk Management
T: +91 22 3090 2707
E: rajosik@kpmg.com
Sai Venkateshwaran
Partner and Head
Accounting Advisory Services
T: +91 22 3090 2020
E: saiv@kpmg.com
KPMG.com/in
Follow us on:
kpmg.com/in/socialmedia
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to
provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in
the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2018 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International
Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name and logo are registered trademarks or trademarks of KPMG International.
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Ind AS 117 *

Introduction to Ind AS 117 and the

Key principles of the new insurance standard are:

Insurance revenue, A higher level of

Overview of the new insurance

Combination and separation

Level of aggregation and recognitition

General Premium allocation Variable fee

Non participating Contracts with coverage Direct participating

Lorem ipsum dolor sit amet,

Presentation and disclosure

Figure 1: Overview of Ind AS 117

The new standard prescribes three measurement models as elaborated under:

Scope insurance contracts issued by treating such contracts as insurance

KPMG in India’s insights

KPMG in India’s insights

The standard prescribes three measurement approaches of insurance contracts:

Default model under the Optional simpliﬁed model Applicable to direct

It is based on the following Many non-life insurance

If the net cash ﬂows result in no

Figure 5: Measurement models

General model Explicit, unbiased,

risk. Therefore, management

KPMG in India’s insights

Risk adjustment Risk adjustment

Liability for Discounting Discounting

Figure 8: Comparison of general model with premium allocation approach

Variable Fee Approach

Figure 9: Comparison of general model with variable fee approach

KPMG in India’s insights

Acquisition cost Reinsurance contracts –– Entity shall additionally include

CSM at previous reporting date 12

+ Effects of new contracts added to the group

+/- Interest accreted on the CSM during the period

Effects of currency exchange

- Amount of CSM recognised in proﬁt or loss

KPMG in India’s insights

Insurance contracts issued and reinsurance contracts held

Figure 11: Derecognition criteria

KPMG in India’s insights

Transition requirement Retrospective method is the

a. Identify, recognise and measure each

Retrospective b. Rerecognise any existing balances that

c. Recognise any resulting net

Modified Retrospective Or Fair Value Approach

Determine the contractual service margin or

Figure 12: Transition approaches

Ind AS 104 Ind AS 117

Unbundling of insurance contract

The insurer cannot measure the deposit component

Liability Adequacy Test

Ind AS 104 Ind AS 117

Investment contracts with DPFs

New business issued and business in force comparison

Ind AS 104 Ind AS 117

Interaction with other Ind AS4

• Increased demand for reconciliation 117 pertaining to level of

requirement and financial statements cash flow at granular

• Assess the organisational governance • More dependency