IFRS Essentials

IFRS 4 Insurance Contracts

1 INTRODUCTION AND SCOPE

IFRS 4 is a stepping stone standard (IFRS 4.IN2) that is used to specify the financial reporting for insurance contracts by insurers (i.e. by entities that issue such contracts) until the IASB completes the second phase of its project on insurance contracts. Accordingly, IFRS 4 specifies only certain aspects of the accounting and specifies selected disclosures (IFRS 4.1).

2 INSURANCE CONTRACTS, INSURANCE RISK, AND THE SCOPE OF IFRS 41

An insurance contract is a contract under which the insurer accepts significant insurance risk by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder.

Insurance risk is risk, other than financial risk, transferred from the holder of a contract to the issuer. Financial risk is the risk of a possible future change in one or more of the following variables: interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating, credit index or other variables. In the case of a non-financial variable, the variable must not be specific to a party to the contract, i.e. no contract party must be subject to an actual risk with regard to the variable.

The scope of IFRS 4 comprises all insurance contracts that the reporting entity issues as insurer as well as reinsurance contracts that it holds (IFRS 4.2a).

IFRS 4 also applies to financial instruments that the reporting entity issues with a discretionary ...