Ask most IFRS 17 students where measurement starts and they will point to the fulfilment cash flows or the contractual service margin. Both are measured group by group, so each contract has to be assigned to a group before that measurement is complete. The steps overlap, since sorting contracts by profitability can itself draw on cash flow estimates. If searches for IFRS 17 level of aggregation or annual cohorts gave you definitions but no sense of why they matter, this lesson is for you.
Why grouping is more than housekeeping
A profitable contract and a loss-making contract can sit in the same book. If they are measured together, does the loss still show? That question is why grouping deserves the same care as measurement.
What the lesson covers
- Portfolios: contracts subject to similar risks and managed together, IFRS 17.14.
- Annual cohorts: why IFRS 17.22 keeps contracts issued more than one year apart out of one group, a test of issue dates rather than calendar years.
- Groups by profitability: the minimum split IFRS 17.16 requires between contracts onerous at initial recognition, those with no significant possibility of becoming onerous and the rest.
- Onerous contracts: how the net outflow test at initial recognition works and what IFRS 17.47 asks of a group that fails it.
- Set or individual assessment: when IFRS 17.17 lets a set of contracts be assessed together, as a peer of testing each contract alone.
- Further subdivision: the IFRS 17.21 election, set beside the minimum groups as an equal option and followed into day one figures, later measurement and disclosures.
The worked example
Naledi Funeral Insurer Ltd issues a book of funeral cover on a single date. The lesson takes it through the portfolio, cohort and profitability tests, then measures each group in Rand. Then it asks the question examiners return to: what would the accounts show if the insurer netted the whole book into one pot, and how would that compare with grouping? The answer is in the lesson.
Start the lesson
Open the IFRS 17 level of aggregation lesson in the course and work through the example group by group.
Questions about this topic
What does level of aggregation mean in IFRS 17?
It is the unit at which insurance contracts are measured. A portfolio comprises contracts subject to similar risks and managed together (IFRS 17.14). The entity must divide each portfolio into groups by profitability at initial recognition (IFRS 17.16), and no group may hold contracts issued more than one year apart (IFRS 17.22).
Can an insurer split its groups more finely than the minimum?
Yes. IFRS 17.21 permits an entity to divide the minimum groups further. Keeping the minimum groups and subdividing them are both permitted and neither is a default. The lesson follows each direction through to the figures, later measurement and the disclosures.
Is an annual cohort the same as a calendar year?
Not necessarily. The limit in IFRS 17.22 turns on whether contracts were issued more than one year apart, so the annual limit on its own does not separate contracts issued within a year of each other, even across a year end.
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