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Effect of Insurance Contract Recognition Units on IFRS 17 Liability Measurement

Abstract

Insurance contracts are measured and reported under IFRS 17 using defined levels of aggregation that determine how individual contracts are grouped for recognition and measurement. The identification of appropriate contract recognition units can affect the assessment of expected cash flows, profitability, losses, and insurance contract liabilities. Appropriate grouping is therefore important for achieving reliable IFRS 17 liability measurement and consistent financial reporting. This study will examine the effect of insurance contract recognition units on IFRS 17 liability measurement. It will assess how differences in the grouping and recognition of insurance contracts influence the measurement of insurance contract liabilities and determine how the selected recognition units affect the allocation and presentation of contractual cash flows and related obligations. The study will focus on insurance contract recognition units, IFRS 17 liability measurement, contract grouping, insurance contract liabilities, fulfilment cash flows, contractual service margin, expected claims, premiums, expenses, risk adjustment, and discount rates. IFRS 17 measurement principles and actuarial valuation techniques will be applied to assess the effects of alternative contract recognition and grouping structures on measured liabilities. Different contract groupings based on profitability, issuance periods, and risk characteristics will be considered. A quantitative research approach will be adopted for the study. Relevant insurance contract data, premium cash flows, claims, expenses, contract characteristics, risk adjustments, discount rates, and contractual service margins will be analysed using IFRS 17 measurement techniques, present value calculations, actuarial modelling, sensitivity analysis, and scenario analysis. Alternative recognition and grouping structures will be evaluated to determine their effects on the measurement of insurance contract liabilities. The study is expected to reveal that insurance contract recognition units may have a significant effect on IFRS 17 liability measurement. Differences in contract grouping may influence the allocation of fulfilment cash flows, contractual service margins, and loss recognition, thereby producing variations in measured insurance liabilities. The magnitude of these effects may depend on contract profitability, risk characteristics, contract duration, expected cash flows, and the timing of contract issuance. The study will be useful to insurance companies, actuaries, accountants, auditors, financial reporting professionals, regulators, risk managers, and researchers. It may provide useful information for improving contract grouping practices, strengthening IFRS 17 liability measurement, supporting accurate financial reporting, and enhancing the consistency of insurance contract recognition and valuation. The study concludes that the selection of appropriate insurance contract recognition units is an important consideration in IFRS 17 liability measurement because contract grouping can influence the measurement and recognition of insurance obligations. It is therefore recommended that insurers carefully assess contract characteristics, profitability, risk profiles, issuance periods, and applicable IFRS 17 requirements when establishing recognition units and measuring insurance contract liabilities.

Keywords: Insurance contract recognition units, IFRS 17, liability measurement, contract grouping, insurance contract liabilities, fulfilment cash flows, contractual service margin, expected claims, premium cash flows, insurance expenses, risk adjustment, discount rates, contract profitability, actuarial valuation, insurance accounting.