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Effect of Insurance Contract Grouping Criteria on IFRS 17 Profit Recognition

Abstract

Insurance contract grouping is an important aspect of IFRS 17 because insurance contracts are required to be grouped according to specified criteria for measurement and reporting purposes. The grouping of contracts can influence how profitability is identified, measured, and recognised over the coverage period. Differences in contract characteristics, expected profitability, and timing of cash flows may therefore affect the pattern and timing of profit recognition under IFRS 17. This study will examine the effect of insurance contract grouping criteria on IFRS 17 profit recognition. It will assess how alternative grouping classifications influence the amount and timing of profit recognised from insurance contracts. The study will also examine how the separation of contracts into appropriate groups affects the recognition of the contractual service margin, insurance revenue, and insurance service result. The study will focus on insurance contract grouping, IFRS 17, profit recognition, contractual service margin, insurance revenue, insurance service result, contract profitability, contract measurement, expected cash flows, and insurance liabilities. Actuarial calculations and IFRS 17 measurement principles will be applied to examine how grouping contracts according to profitability, annual cohorts, and other relevant characteristics affects the recognition of insurance profits. A quantitative research approach will be adopted for the study. Insurance contract data, premium information, claims estimates, expenses, contract characteristics, and profitability assumptions will be analysed using descriptive statistics, comparative analysis, actuarial calculations, scenario analysis, and sensitivity analysis. Alternative grouping criteria will be applied to selected insurance contract portfolios to determine differences in contractual service margin movements and the timing of recognised profits. The study is expected to reveal that insurance contract grouping criteria may have a significant effect on the timing and pattern of IFRS 17 profit recognition. Different grouping structures may produce variations in the allocation and release of the contractual service margin, particularly where contracts have different levels of expected profitability and coverage periods. The magnitude of the effect may depend on contract characteristics, profitability classifications, cash flow patterns, and the timing of insurance services provided. The study will be useful to actuaries, insurance companies, accountants, financial reporting specialists, valuation professionals, regulators, auditors, and researchers. It may provide useful information for improving the application of IFRS 17 grouping requirements, strengthening profit recognition procedures, and enhancing the consistency of insurance contract measurement and financial reporting. The findings may also assist insurers in understanding how grouping decisions influence reported profitability across different insurance contract portfolios. The study concludes that insurance contract grouping criteria are important considerations in IFRS 17 profit recognition because the classification of contracts into appropriate groups can influence the timing and presentation of recognised insurance profits. It is therefore recommended that insurers apply consistent grouping procedures, maintain accurate contract-level information, and carefully assess profitability and contractual characteristics when determining appropriate groups for IFRS 17 measurement and profit recognition.

Keywords: Insurance contract grouping, IFRS 17, profit recognition, contractual service margin, insurance revenue, insurance service result, contract profitability, insurance liabilities, contract measurement, annual cohorts, expected cash flows, actuarial valuation, insurance accounting, financial reporting, IFRS 17 compliance.