A product called funeral cover sounds like insurance, but does the name settle whether it falls under IFRS 17? It does not. Before measuring anything, an insurer must decide which contracts belong inside the standard. That scope question trips up students and practitioners alike, because the answer rests on what a contract does, not what it is called.
What makes a contract an insurance contract under IFRS 17?
The definition in Appendix A turns on insurance risk passing from the policyholder to the issuer. An uncertain future event must exist at inception, as paragraph B3 explains, and it must adversely affect the policyholder. Then comes the deciding question: is the insurance risk transferred significant? Paragraphs B17 to B21 set out how to judge that. What do they ask the issuer to look at? The lesson works through each part of the test.
Does the average outcome settle it?
A common instinct is to judge risk by the average outcome alone. If the expected payout looks modest, is the insurance risk transferred too small to count? Or can a contract with a calm average still carry significant risk? The lesson puts that question to the funeral plan directly.
Which scope choices sit inside the standard?
Paragraph 7 removes some contracts even when they meet the definition, and three paragraphs give issuers a choice of standard: paragraph 7(e) for certain financial guarantee contracts, paragraph 8 for fixed-fee service contracts and paragraph 8A for contracts such as loans with death waivers. The lesson sets out each choice’s conditions and follows both options to the statements and notes, treating neither as a default.
The worked example
You follow Basadi Funeral Cover, a fictional insurer selling a one year funeral plan, worked in Rand. What is uncertain when the policy is issued, who does the event harm and is there a scenario in which the risk becomes significant? The lesson takes each test in turn and shows where Basadi lands.
Start the lesson
If you prepare or audit insurance financial statements, or are studying for an IFRS 17 exam, open the scope lesson that Amatle Institute offers and test the plan yourself.
Questions about this topic
What does scope mean under IFRS 17?
Scope is the question of whether a contract falls inside IFRS 17 at all. Paragraph 3 lists the contracts the standard applies to, paragraph 7 excludes some contracts even when they meet the definition of an insurance contract and paragraphs 7(e), 8 and 8A give issuers a choice of standard for certain contracts.
What is insurance risk?
Insurance risk is risk, other than financial risk, that passes from the holder of a contract to the issuer. It is the risk the issuer takes on when it agrees to compensate the policyholder if a specified uncertain future event adversely affects them.
What does this lesson cover and who is it for?
It covers the contracts IFRS 17 applies to, the scope exclusions and the three scope choices with their consequences for the statements and notes. It also works the tests of uncertainty, adverse effect and significant insurance risk on one funeral plan. It suits students preparing for IFRS 17 exams and finance professionals who prepare or audit insurers' financial statements.
Free · one email a week
IFRS and SAM, one requirement at a time
Each week you get the Institute's new articles: one requirement of IFRS 17, IFRS 9, IFRS 15, IFRS 18 or SAM, worked on a South African case. You start with the free IFRS 18 readiness checklist, ten areas to work through before IFRS 18 takes effect, each with its paragraph reference.