1 | IFRS 4 Insurance Contracts

IFRS 4 INSURANCE CONTRACTS FACT SHEET 2 | IFRS 4 Insurance Contracts

This fact sheet is based on existing requirements as at 31 December 2015 and does not take into account recent standards and interpretations that have been issued but are not yet effective.

IMPORTANT NOTE This fact sheet is based on the requirements of the International Financial Reporting Standards (IFRSs). In some jurisdictions, the IFRSs are adopted in their entirety; in other jurisdictions the individual IFRSs are amended. In some jurisdictions the requirements of a particular IFRS may not have been adopted. Consequently, users of the fact sheet in various jurisdictions should ascertain for themselves the relevance of the fact sheet to their particular jurisdiction. The application date included below is the effective date of the initial version of the standard. 3 | IFRS 4 Insurance Contracts

IASB APPLICATION DATE PRESCRIBED TREATMENT

(NON-JURISDICTION SPECIFIC) Embedded derivatives IFRS 4 is applicable for annual reporting periods As an exception to the rules in IAS 39, an insurer need not commencing on or after 1 January 2005. separate, and measure at , a policyholder’s option to surrender an insurance contract for a fixed amount (or OBJECTIVE for an amount based on a fixed amount and an interest rate), and if the exercise price differs from the carrying The objective of IFRS 4 is to specify the financial reporting amount of the host insurance liability. for insurance contracts by any entity that issues such contracts (described in IFRS 4 as an insurer). However, the requirement in IAS 39 does apply to a put option or surrender option embedded in an SCOPE insurance contract if the surrender value varies in response to the change in a financial variable (such as an or IFRS 4 applies to: commodity price or index), or a non-financial variable that • insurance contracts that an entity issues and reinsurance is not specific to a party to the contract. contracts that it holds Furthermore, that requirement also applies if the holder’s • financial instruments that it issues with a discretionary ability to exercise a put option or cash surrender option participation feature is triggered by a change in such a variable (for example, a put option that can be exercised if a stock market index IFRS 4 does not apply to the following insurance contracts: reaches a specified level). • product warranties issued directly by a manufacturer, Unbundling of deposit components dealer or retailer – refer IAS 18 / IAS 37 Some insurance contracts contain both an insurance • employers’ and liabilities under employee benefit component and a deposit component. In some cases, plans – refer IAS 19 / IFRS 2 an insurer is required or permitted to unbundle those • retirement benefit obligations reported by defined components. benefit retirement plans Further guidance is provided in paragraphs 10 – 12 of IFRS 4. • contractual rights or contractual obligations that are Recognition and measurement contingent on the future use of, or right to use, a non-financial item, as well as a lessee’s residual value Temporary exemption from some other IFRS guarantee embedded in a finance lease – refer IAS 17 / Paragraphs 10 – 12 of IAS 8 specify criteria for an entity IAS 18 / IAS 38 to use in developing an accounting policy if no Standard • financial guarantee contracts unless the issuer has applies specifically to an item. previously asserted explicitly that it regards such IFRS 4 exempts an insurer from applying those criteria contracts as insurance contracts and has used to its accounting policies for: accounting applicable to insurance contracts a. insurance contracts that it issues (including related • contingent consideration payable or receiv