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IFRS 17 Insurance Contracts Memo Template (CSM, PAA, VFA, LDTI)

Scope and boundary, aggregation, GMM/PAA/VFA choice, cash flows, risk adjustment, CSM roll-forward, onerous groups, transition, LDTI comparison

財務・投資・会計フルIFRS 17 (paragraph numbers only); FASB ASC 944 (ASU 2018-12 LDTI)ifrsinsurancecontractsmemo

使い方: Use it when an insurer needs to document the IFRS 17 judgements for one portfolio or cohort. Fill the measurement model test and the coverage unit basis first, because the CSM release follows from them. The main pitfall is releasing the CSM before adjusting it for changes relating to future service.

プレビュー

IFRS 17 Insurance Contracts Memo: [Product, portfolio or cohort]

Technical accounting memo for one insurance portfolio or one annual cohort: scope and contract boundary, level of aggregation, measurement model choice (general model, premium allocation approach or variable fee approach), fulfilment cash flows, risk adjustment, contractual service margin (CSM), onerous contracts, reinsurance held, presentation, transition and disclosure, with a US GAAP comparison to the long-duration targeted improvements (LDTI) in FASB ASC Topic 944. Structure aligned with IFRS 17 Insurance Contracts (issued May 2017, amended June 2020 and December 2021, effective for annual periods beginning on or after 2023-01-01), cited by paragraph number only. Replace every [bracketed] value and every row marked Example. This is a document format, not accounting, actuarial, audit, tax, legal or financial advice; check the current official text and a qualified professional.

Document control

FieldValue
Document ID[IF17-YYYY-NNN] Example: IF17-2027-003
Portfolio and cohort[Portfolio, annual cohort] Example: Term Protect level-term life, UK, 2027 cohort
Reporting entity[Legal entity] Example: Fenwold Life Assurance plc, consolidated into Fenwold Group
Framework[IFRS 17 as issued by the IASB / as adopted in the jurisdiction] Example: UK-adopted international accounting standards; US GAAP comparison in section 13 for the US parent reporting package
Currency and units[GBP thousand unless stated]
First reporting period affected[Period] Example: FY2027
Version[0.1]
Status[Draft / In review / Final]
Owner[@insurance-accounting-lead]
Approvers/reviewers[@chief-actuary], [@group-financial-controller], [@cfo]
Last updatedYYYY-MM-DD
Classification[Confidential]
Auditor shared[Yes / No, date]

Approvals

RoleNameDecisionDate
Preparer, insurance accounting[@name][Prepared]YYYY-MM-DD
Reviewer, actuarial function[@name][Agree / Return]YYYY-MM-DD
Group financial controller[@name][Approve / Return]YYYY-MM-DD
Chief financial officer[@name][Approve / Return]YYYY-MM-DD

Revision history

VersionDateAuthorChange summary
0.1YYYY-MM-DD[@name]First draft from product terms and pricing basis
0.5YYYY-MM-DD[@name]Example: Coverage unit basis agreed with actuarial function
1.0YYYY-MM-DD[@name]Example: Approved, shared with the external auditor

Contents

1. Summary and conclusion

State the conclusion first, then the judgements behind it. Quantify the effect on the first reporting period and say which judgements are close calls, with a pointer to the section that sets out the alternative view. Auditors and supervisors read this section first and return to it after reading the rest.

Example: The 2027 cohort of Term Protect contracts issued by Fenwold Life Assurance plc falls into two groups: GRP-TP-2027-A, with no significant possibility of becoming onerous, and a small onerous group GRP-TP-2027-B (loss GBP 150k, GBP 90k net of reinsurance, section 9). Group A is measured under the general model because the coverage period is up to 25 years and the premium allocation approach eligibility test fails. At initial recognition the present value of future cash inflows is GBP 12,000k, outflows are GBP 9,800k and the risk adjustment is GBP 600k, so the CSM is GBP 1,600k. In FY2027 the CSM accretes GBP 56k of interest at the locked-in rate, absorbs an adverse lapse-assumption change of GBP 120k and releases GBP 365.7k to profit or loss on a sum-assured coverage unit basis, closing at GBP 1,170.3k. The insurance service result of group A for the year is GBP 450.7k. The main judgement is the coverage unit basis (section 8).

ItemConclusionSection
In scope of IFRS 17[Yes / No] Example: Yes, significant insurance risk transferred3
Groups[N] Example: 2 groups: A with no significant possibility of becoming onerous, B onerous at initial recognition4
Measurement model[GMM / PAA / VFA] Example: General model5
CSM at initial recognition[Amount] Example: GBP 1,600k (group A)8
Coverage unit basis[Basis] Example: Sum assured in force, undiscounted8
Risk adjustment technique and confidence level[Technique, level] Example: Cost of capital, equivalent to the 75th percentile7
FY insurance service result[Amount] Example: GBP 450.7k (group A); group B loss GBP 90k net of reinsurance9, 10

2. Contract facts and documents reviewed

Read the policy wording, the product specification, the pricing basis, the reinsurance treaty and any distribution agreement that pays commission or shares profit. Ask the product owner whether any practice exists outside the wording, such as discretionary payments or premium holidays, and record the answer with the name of the person who confirmed it.

RefDocumentDateSource
DOC-001 (Example)Term Protect policy conditions, version 42026-11-02Product governance
DOC-002 (Example)Pricing basis and profit test, 2027 launch2026-10-15Pricing actuary
DOC-003 (Example)Quota share treaty QS-2027-01 with a fictional reinsurer, 40% cession2027-01-01Reinsurance team
DOC-004 (Example)Broker commission agreement, indemnity commission2026-12-01Distribution
FactValueRelevance
Benefit[Description] Example: Level sum assured on death within the termScope, coverage units
Term[Range] Example: 10 to 25 yearsContract boundary, model choice
Premium[Basis] Example: Level monthly premium, guaranteed for the termContract boundary
Surrender value[Yes / No] Example: NoneInvestment component
Commission[Basis] Example: Up-front indemnity commission, clawed back on lapse in first 4 yearsAcquisition cash flows

3. Scope, separation of components and contract boundary

Confirm that each contract transfers significant insurance risk (paragraph 3 and paragraphs B7 to B25) and note any scope exclusions considered (paragraphs 7 and 8A). Then assess whether embedded derivatives, distinct investment components or distinct goods and services must be separated (paragraphs 10 to 13). Record the conclusion and the evidence for each candidate component.

Set the contract boundary using paragraph 34 and paragraphs B61 to B71. Ask: when does the insurer gain the practical ability to reassess the risk of the particular policyholder, or of the portfolio, and set a price that fully reflects it? Cash flows after that point are outside the boundary.

QuestionAnswerParagraph
Significant insurance risk in at least one scenario with commercial substance?Example: Yes, death benefit far exceeds premiums paid3, B7 to B25
Distinct investment component?Example: No, no surrender or maturity value11(b), B31 to B32
Embedded derivative to separate?Example: No11(a)
Distinct goods or services?Example: No, the helpline is incidental12
Contract boundary endExample: End of the policy term; premiums are guaranteed and cannot be repriced34, B61 to B71

4. Level of aggregation

Identify the portfolio (contracts with similar risks managed together, paragraph 14). Within it, divide contracts at initial recognition into the three profitability groups in paragraph 16 and never combine contracts issued more than one year apart (paragraph 22). Explain the evidence used to assess onerousness at initial recognition (paragraph 17 allows a set of contracts to be assessed together when reasonable and supportable information shows they fall in the same group).

If a jurisdiction-specific exemption from annual cohorts applies, such as the optional exemption in the EU-adopted version of IFRS 17 for certain intergenerationally mutualised contracts, state that the exemption is a carve-out and that the group does not then comply with IFRS 17 as issued by the IASB.

Group IDPortfolioCohortProfitability groupEvidence
GRP-TP-2027-A (Example)Term Protect UK2027No significant possibility of becoming onerousProfit test margin above 10% in all priced cells, sensitivity to lapses within appetite
GRP-TP-2027-B (Example)Term Protect UK2027Onerous at initial recognitionPromotional pricing for a fictional affinity scheme, see section 9
GRP-TP-2027-C (Example)Term Protect UK2027RemainingNo contracts in FY2027

5. Measurement model choice

Three models are available. The general model (GMM, paragraphs 32 to 52) is the default. The premium allocation approach (PAA, paragraphs 53 to 59) is an optional simplification for the liability for remaining coverage, available when the coverage period of each contract is one year or less, or when the entity reasonably expects the result not to differ materially from the general model (paragraphs 53 and 54). The variable fee approach (VFA, paragraph 45 and paragraphs B101 to B118) is required for contracts with direct participation features and is assessed at inception only.

TestResultEvidence
Direct participation features (B101 conditions)Example: Not met, no underlying itemsPolicy conditions DOC-001
Coverage period one year or lessExample: Not met, 10 to 25 yearsProduct specification
PAA not materially differentExample: Not met, discounting and lapse profile drive material differencesActuarial comparison, run 2026-12-05
ConclusionExample: General model

6. Fulfilment cash flows and discount rates

Fulfilment cash flows combine an unbiased, probability-weighted estimate of future cash flows (paragraph 33), discounting for the time value of money and financial risk (paragraph 36) and the risk adjustment (paragraph 37, section 7). List each cash flow inside the boundary (paragraph B65) and confirm that excluded items are left out (paragraph B66). Allocate insurance acquisition cash flows to groups on a systematic and rational basis (paragraph 28A onwards).

State the discount rate approach: bottom-up (risk-free curve plus an illiquidity premium) or top-down (reference portfolio yield less credit risk), with reference to paragraphs 36 and B72 to B85. Record the locked-in rate used for CSM accretion for each cohort.

ComponentPresent value at initial recognition (GBP k)Assumption source
Premiums (inflow) (Example)12,000Policy data, lapse basis 2027
Death claims (Example)(7,800)Mortality basis, fictional industry table adjusted for experience
Acquisition cash flows (Example)(1,100)Commission agreement DOC-004
Maintenance expenses (Example)(900)Expense study 2026
Net present value of future cash flows (Example)2,200Net inflow
Discount basis (Example)Bottom-up, risk-free plus illiquidity premium, locked-in weighted rate 3.5%Market data 2027-01 to 2027-12

7. Risk adjustment for non-financial risk

The risk adjustment reflects the compensation the entity requires for bearing uncertainty about the amount and timing of cash flows from non-financial risk (paragraph 37, paragraphs B86 to B92). State the technique (confidence level, cost of capital or another approach), the risks covered (mortality, lapse, expense), the diversification level assumed and the confidence level the result corresponds to, which paragraph 119 requires to be disclosed.

If you disaggregate the change in the risk adjustment between the insurance service result and insurance finance income or expenses (paragraph 81), state the policy choice.

ItemValue
Technique (Example)Cost of capital, 6% per year on a one-year 99.5% non-financial risk capital projection
Risks covered (Example)Mortality, lapse, expense
Diversification (Example)Entity level, allocated to groups pro rata to stand-alone amounts
Risk adjustment at initial recognition (Example)GBP 600k
Equivalent confidence level (paragraph 119) (Example)75th percentile
Disaggregation (paragraph 81) (Example)Not disaggregated, whole change in insurance service result

8. Contractual service margin and coverage units

At initial recognition the CSM equals the net inflow of the fulfilment cash flows, so that no gain arises (paragraph 38). Subsequently, for contracts without direct participation features, adjust the CSM in the order in paragraph 44: new contracts, interest accreted at the locked-in rate, changes in fulfilment cash flows relating to future service (paragraphs B96 to B100), currency effects and then the release for services provided in the period, measured with coverage units (paragraph B119).

Choose coverage units that reflect the quantity of benefits and the expected duration of coverage. Justify the basis, show the units per period and say whether units are discounted.

8.1 CSM at initial recognition

LineGBP k
Present value of future cash outflows (Example)9,800
Present value of future cash inflows (Example)(12,000)
Risk adjustment (Example)600
Fulfilment cash flows (Example)(1,600)
CSM at initial recognition (Example)1,600

8.2 Coverage units

Example: The basis is sum assured in force at the start of each year, undiscounted, scaled so that year 1 equals 100.

Year20272028202920302031Total
Coverage units (Example)10092847668420

The Example shows a five-year horizon for readability; a real 25-year cohort shows every year to the end of the boundary.

8.3 CSM roll-forward FY2027

LineGBP kParagraph
Opening CSM (new group) (Example)1,600.044(a)
Interest accreted at locked-in rate 3.5% (Example)56.044(b)
Change in estimates relating to future service: higher lapse assumption (Example)(120.0)44(c), B96
CSM before release (Example)1,536.0
Release: 1,536.0 x 100 / 420 (Example)(365.7)44(e), B119
Closing CSM (Example)1,170.3

9. Onerous contracts and reinsurance held

A group is onerous when the fulfilment cash flows are a net outflow at initial recognition (paragraph 47). Recognise the loss in profit or loss, establish a loss component of the liability for remaining coverage and allocate later changes systematically (paragraphs 48 to 52).

Reinsurance contracts held are measured as separate groups with the modifications in paragraphs 60 to 70A: the CSM can be a net cost or a net gain, and a loss-recovery component offsets losses on onerous underlying groups to the extent the treaty covers them.

ItemValue
Onerous group (Example)GRP-TP-2027-B
Fulfilment cash flows at initial recognition (Example)Net outflow GBP 150k
Loss recognised and loss component (Example)GBP 150k
Reinsurance treaty (Example)QS-2027-01, 40% quota share, entered before the underlying contracts
Loss-recovery component (paragraph 66A) (Example)40% x 150 = GBP 60k
Net effect on profit or loss (Example)GBP 90k loss

10. Presentation and insurance service result

Insurance revenue under the general model reflects the services provided in the period: expected claims and expenses released, the change in the risk adjustment, the CSM release and the recovery of acquisition cash flows (paragraphs 83 and B120 to B125). Insurance service expenses comprise incurred claims and expenses, amortisation of acquisition cash flows and losses on onerous groups (paragraph 84). Insurance finance income or expenses are presented separately (paragraphs 87 to 92), with the policy choice on disaggregation through other comprehensive income stated (paragraphs 88 and 89).

The Example below covers GRP-TP-2027-A only.

Line FY2027GBP k
Expected claims released (Example)1,700.0
Expected maintenance expenses released (Example)190.0
Change in risk adjustment for risk expired (Example)140.0
CSM release (section 8.3) (Example)365.7
Recovery of acquisition cash flows, time basis over the five-year illustrative horizon, 1,100 / 5 (Example)220.0
Insurance revenue (Example)2,615.7
Actual claims incurred (Example)(1,760.0)
Actual maintenance expenses (Example)(185.0)
Amortisation of acquisition cash flows (Example)(220.0)
Insurance service expenses (Example)(2,165.0)
Insurance service result (Example)450.7

Cross-check: CSM release 365.7 plus risk adjustment release 140.0, less the claims experience variance 60.0, plus the expense experience variance 5.0, equals 450.7.

From reporting periods beginning on or after 2027-01-01, IFRS 18 Presentation and Disclosure in Financial Statements changes the structure of the statement of profit or loss; see the IFRS 18 Transition Plan (finance/ifrs-18-transition-plan) for how insurance lines map to the operating and investing categories.

11. Transition

Apply IFRS 17 retrospectively unless impracticable (paragraph C3). If impracticable for a group, choose the modified retrospective approach (paragraphs C6 to C19A) or the fair value approach (paragraphs C20 to C24). Record the approach for each group, the evidence for impracticability and the transition-date CSM. Paragraphs 114 to 116 require the transition disclosures to continue until the affected groups run off. The December 2021 amendment permits a classification overlay for comparative financial assets (paragraphs C28A to C28E).

For entities adopting later (first-time adopters, or acquisitions of in-force books), restate the approach for the relevant date.

GroupApproachReasonCSM at transition (GBP k)
GRP-TP-2016 to 2020 (Example)Fair valuePre-2021 cash-flow data not retained at policy levelFair value 2,400 less fulfilment cash flows 1,900 = 500
GRP-TP-2021 (Example)Full retrospectiveFull data available[Amount]

12. Disclosure

Disclosures follow the objective in paragraph 93 and include reconciliations of the liability for remaining coverage and incurred claims (paragraphs 100 to 105), analysis by measurement component (paragraph 101), new business effects (paragraph 107), expected CSM recognition (paragraph 109), significant judgements (paragraph 117), the risk adjustment confidence level (paragraph 119), and the nature and extent of risks (paragraphs 121 to 132).

DisclosureParagraphOwnerSource
LRC and LIC reconciliation100, 103[@name]Sub-ledger roll-forward
Measurement component reconciliation101, 104[@name]Actuarial model output
New business effect107[@name]New business run
Expected CSM release by time band109[@name]Coverage unit projection
Significant judgements117[@name]This memo
Confidence level119[@name]Section 7
Sensitivity analysis128[@name]Sensitivity runs

Use the Financial Statement Disclosure Checklist (finance/financial-statement-disclosure-checklist) to track completeness across the annual report.

13. US GAAP comparison: ASC 944 and LDTI

FASB ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts, as deferred by ASU 2019-09 and ASU 2020-11, is effective for SEC filers other than eligible smaller reporting companies for fiscal years beginning after 2022-12-15, and for all other entities for fiscal years beginning after 2024-12-15 (interim periods within fiscal years beginning after 2025-12-15). Record the differences for this product so the group can reconcile the two sets of numbers.

TopicIFRS 17ASC 944 with LDTI
Unearned profitCSM, released by coverage unitsNo CSM; net premium ratio approach for the liability for future policy benefits
Assumption updatesFuture service changes adjust the CSMCash-flow assumptions reviewed at least annually, retrospective catch-up through net income
Discount rateCurrent rates, locked-in for CSM accretionUpper-medium grade (low credit risk) fixed-income yield, updated each reporting date through OCI
Risk marginExplicit risk adjustmentNo explicit margin for traditional contracts
Acquisition costsIncluded in fulfilment cash flowsDeferred acquisition costs amortised on a constant level basis
Market risk benefitsWithin fulfilment cash flowsSeparate category measured at fair value

14. Controls, data and systems

Name the models, the assumption governance forum and the key controls. Link each control to the risk it mitigates. Use the Model Development Document (finance/model-development-document) for the actuarial model and the Month-End Close Checklist (finance/month-end-close-checklist) for the ledger postings.

Control IDControlFrequencyOwner
CTL-IF17-001 (Example)Reconcile policy count and sum assured from policy administration to model pointsQuarterly[@actuarial-data-lead]
CTL-IF17-002 (Example)Assumption committee approves mortality, lapse and expense basesAnnual[@chief-actuary]
CTL-IF17-003 (Example)Independent recalculation of CSM roll-forward for top 5 groupsQuarterly[@insurance-accounting-lead]
CTL-IF17-004 (Example)Review of locked-in discount rate per cohortAt cohort close[@treasury-actuary]

15. Glossary and references

15.1 Glossary

TermMeaning in this memo
CSMContractual service margin: unearned profit recognised as services are provided
Fulfilment cash flowsDiscounted, probability-weighted future cash flows plus the risk adjustment
LRCLiability for remaining coverage
LICLiability for incurred claims
Coverage unitsMeasure of the quantity of service in each period, used to release the CSM
Loss componentPart of the LRC that tracks losses on onerous groups
GMM, PAA, VFAGeneral model, premium allocation approach, variable fee approach
LDTILong-duration targeted improvements, ASU 2018-12

15.2 References

ReferenceVersion or dateUse
IFRS 17 Insurance Contracts (IFRS Foundation)Issued May 2017, amended June 2020 and December 2021, effective 2023-01-01. Official text: IFRS Foundation, free registered access or licensed copy: https://www.ifrs.org/issued-standards/list-of-standards/ifrs-17-insurance-contracts/Paragraph references
FASB ASU 2018-12, ASU 2019-09, ASU 2020-11 (ASC 944)Effective dates as stated in section 13. Official text: FASB, https://www.fasb.org/standardsUS GAAP comparison
IFRS 18 Presentation and Disclosure in Financial StatementsEffective 2027-01-01Presentation structure
Accounting Policy Manual (finance/accounting-policy-manual)This collectionGroup policy choices
Technical Accounting Memo (finance/technical-accounting-memo)This collectionGeneric memo format

Standard and licence note

Structure aligned with IFRS 17 Insurance Contracts (IFRS Foundation) and FASB ASC Topic 944 as amended by ASU 2018-12. Standards are cited by name and paragraph number only; no text, definitions or examples from the IFRS Foundation or FASB are reproduced, and IFRS is a trademark of the IFRS Foundation used nominatively. Paragraph numbers were checked against a compiled national adoption of IFRS 17 with identical numbering. Obtain the current standards for the normative requirements and check later amendments and effective dates. Fenwold Life Assurance plc, its products, treaties and every figure are fictional and original. This template is original text written for this collection and is not accounting, actuarial or legal advice; check the current official text and a qualified professional. Template licence: MIT.

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